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Headlines
- Global markets faced a decline due to worries about U.S. economic growth and disappointing tech earnings.
- Safe-haven assets like gold, government bonds, and stable currencies saw gains.
- Key economic data, including the U.S. non-farm payrolls report, added to the market's uncertainty.
Global stocks are ending a turbulent week on a downward note as concerns over U.S. growth and disappointing earnings from tech companies weigh heavily on markets. As investors sought safer options, assets like gold, government bonds, and stable currencies experienced gains.
In Asia, a selloff led Japan's Nikkei index down by 5.8%, a drop not seen since the COVID-19 crisis in March 2020. The MSCI's broad gauge of global stocks decreased by 0.8%, while Europe's main Stoxx share index fell by 1.6% in early trading, with all major regional equity gauges declining. Futures trading indicated Wall Street's S&P 500 would open more than 1% lower.
Market sentiment soured after weaker-than-expected U.S. factory data on Thursday raised fears that the Federal Reserve's decision to maintain benchmark borrowing costs at a 23-year high of 5.25%-5.5% for a year might have negatively impacted the economy. European technology stocks fell to their lowest level in over six months on Friday as investors offloaded semiconductor stocks following disappointing earnings from Intel. The STOXX Europe 600 technology index dropped by 3.6% to its lowest point since January. Futures trading suggested that the tech-heavy U.S. Nasdaq 100 share index would start the New York session 1.7% lower.
Investors anticipate that major central banks worldwide will start focusing on supporting economies and job markets, which may now be bearing the full brunt of monetary tightening campaigns that began in late 2021. Ahead of the highly anticipated U.S. non-farm payrolls report later in the day, money markets on Friday priced a 31% probability that the Federal Reserve will reduce rates by 50 basis points next month. Economists expect U.S. employers to have added 175,000 new hires in July, down from 206,000 in June.
The historical experience is that turnarounds in the labor market can occur quickly and brutally and that relatively moderate increases in unemployment have been enough to trigger recessions in the United States, said SEB U.S. economist Elisabet Kopelman. The 10-year Treasury yield dropped by 3 basis points to 3.978% on Friday as investors moved into safe-haven bonds. The two-year yield, which typically reflects near-term interest rate expectations, touched its lowest point since May 2023 before slightly rising to 4.14%. Bond yields move inversely to prices. The 10-year German bund yield, a benchmark for euro zone debt costs, fell by 3 basis points to 2.248%.
The market has gone to pricing in three Fed cuts by year end, and while that does feel like we have jumped the gun, investors will wait for today’s payrolls to confirm or deny this. We will also be watching for a rise in the employment rate which will give us clues about a weaker labour market and as a potential recessionary signal, said Fidelity International fixed income manager Shamil Gohil.
In currency markets, the yen added 0.3% to 149 per dollar as haven buying boosted the weakened Japanese currency, supported by the Bank of Japan's recent move to raise interest rates to levels unseen in 15 years. The Swiss franc reached its strongest level since early February at 0.87145 per dollar in Asian trading before slightly declining in the European morning. Sterling was on track for a 1.1% weekly drop against the dollar as traders speculated that the Bank of England might follow its first rate cut of this cycle on Thursday with another in November.
Commodity markets also reflected global growth fears as gold rose by 0.6% to $2,462 an ounce, and although Brent crude oil increased to $80.28 a barrel, it was heading for a fourth consecutive weekly loss.
