ASX 200 Set to Drop as Nasdaq Enters Correction Due to Weak US Jobs Data

Highlights:

• ASX 200 Futures Drop: ASX 200 futures are trading 115 points lower, down 1.48% as of 8:30 AM AEST, driven by weak US economic data and concerns of a faster-than-expected economic slowdown.
• US Market Declines: Major US benchmarks finished sharply lower, with the Russell 2000 posting its worst week since March 2023, and the Nasdaq now more than 10% off record highs. The market sentiment has shifted to "bad news is bad news" as growth worries outweigh the benefits of anticipated rate cuts.
• Amazon and Apple Earnings Impact: Amazon shares nosedived 8.8% on weaker-than-expected earnings and guidance miss, while Apple reported better-than-expected Q3 revenue and earnings, driven by strong iPhone and Services sales.

ASX 200 futures are trading 115 points lower, down 1.48% as of 8:30 AM AEST. Major US benchmarks began August sharply lower after another round of weak economic data spurred concerns that the economy may be slowing faster than expected. The small-cap Russell 2000 (INDEXRUSSELL: RUT) recorded its worst week since March 2023. Fed rate cut bets jumped to 80 bps of easing by year-end. Amazon (NASDAQ:AMZN) shares nosedived on weaker-than-expected earnings and guidance, and sectors including uranium, airlines, and tech are set to extend declines.

Overnight, major US benchmarks finished sharply lower, with the Russell 2000 (INDEXRUSSELL: RUT) posting its worst week since March 2023 and the Nasdaq (NASDAQ:NDAQ) now more than 10% off record highs. For the week, the Russell 2000 fell 6.6%, the Nasdaq dropped 3.3%, the Dow (DJI: DJI) declined 2.1%, and the S&P 500 (INDEXSP: INX) decreased 2.0%. The market has shifted to a "bad news is bad news" sentiment as growth worries, highlighted by the US unemployment rate hitting a three-year high, ISM manufacturing employment reaching its lowest level since 2020, and initial jobless claims being the highest in 11 months, outweigh the benefits of growing rate cut expectations, with the market currently pricing in more than 80 bps of easing this year.

Soft US unemployment data has boosted expectations for the Fed to cut 50 bps in September, with odds currently at 70% from 12% a week ago. This re-pricing of US growth has triggered a rush to exit equities, spurring a pivot toward haven assets like Treasuries and gold. Swaps traders are now fully pricing in three 25 bp Fed cuts this year as the 10-year yield falls below 4% to its lowest since February. Investors are weighing the option to buy the dip against worries about growing economic weakness, with Goldman Sachs noting that hedge funds have increased short bets amid recent uncertainties.

In the stock market, Apple (NASDAQ:AAPL) reported Q3 revenue and earnings that beat consensus, driven by better-than-expected iPhone and Services sales. However, Amazon (NASDAQ:AMZN) shares fell 8.8% after its Q2 revenue came in slightly weaker-than-expected, and its Q3 guidance missed consensus. Berkshire Hathaway (NYSE: BRK.A) disclosed that it sold approximately 49% of its stake in Apple during Q2 and has offloaded more than US$3.8 billion in Bank of America (NYSE:BAC) shares since mid-July. Nike (NYSE:NKE) is ramping up its Olympics marketing spend with a global ad blitz to revive flagging sales, and Tesla (NASDAQ:TSLA) reported a 15.3% increase in China-made EV sales from a year earlier in July. Maersk (CPH: MAERSK-B) lifted its guidance on continued shipping disruptions in the Red Sea and forecasts higher profits for the third time since May.

In other news, the majority of economists expect another Bank of Japan rate hike by year-end, while the RBA is widely expected to leave rates on hold next Tuesday, with economists seeing rate cuts from the first quarter of 2025. On the political front, Trump has proposed ending taxes on Social Security benefits, which would benefit higher-income retirees but accelerate automatic benefit cuts. Iran has reiterated its intent to exact "harsh punishment" on Israel following the assassination of Haniyeh, and the US is preparing for "every possibility" regarding potential Iranian retaliation. Additionally, Biden and Netanyahu have discussed a new military strategy to counter the Iranian threat, and the US has recognized opposition candidate González Urrutia as the rightful winner of Venezuela's presidential elections.

Looking ahead, investors should brace for another dip of over 100 points. Several bearish drivers are emerging, including a ramp-up in growth concerns, softer discretionary spending trends, AI scrutiny, negative seasonality, hawkish takeaways from the Bank of Japan, rising geopolitical risks, and election overhang. The path of least resistance for markets has flipped to lower. The overnight ETF watchlist showed mostly red, with sub-sectors like Uranium, Semiconductors, and Airlines leading the downside. S&P 500 futures are currently down 0.82% and Nasdaq futures are down 1.30% as markets extend the selloff from last week. In the ASX market, Calidus Resources (ASX:CAI) is seeking urgent expressions of interest for acquisition and recapitalization. Hospitals are pushing for the right to boycott big insurers like Medibank (ASX:MPL), Bupa, NIB (ASX:NHF), HCF, and HBF Health from funding talks. Rex’s PE lender PAG is holding off on appointing a receiver as administrator EY prepares documents for a sale of the regional airline, and Vocus (ASX:VOC) is back in talks to buy TPG Telecom's (ASX:TPM) fibre network.