USA
All three major US stock indices closed in the red yesterday. The NASDAQ fell by 2.3%, the S&P 500 lost 1.37%, and the Dow declined by 1.21%. Analysts are increasingly concerned about a potential recession due to recent statistics. Initial jobless claims rose to their highest level since August 2023, and the ISM Manufacturing Index dropped to 46.8, indicating economic contraction. US unemployment rose from 4.1% in June to 4.3% in July. Additionally, the average hourly wage growth year-over-year decreased from 3.8% to 3.6%.
On July 31st, the Federal Reserve left the key interest rate unchanged. However, investors fear that the regulator may have delayed lowering the rate. Over the past two days, the US stock market has lost more than $3.2 trillion, marking the worst performance since March 2020 during the COVID-19 pandemic. Risk indicators surged on Friday. The Cboe Volatility Index, known as Wall Street's "fear gauge," rose above 23, up 25% from the previous day, marking the largest single-day increase since 2021.
According to the FedWatch Tool, there is now a 95% probability that the Federal Reserve will cut rates by 50 basis points in September. Additionally, the yield on 10-year Treasury bonds fell below 4% for the first time since February.
Europe
Last week, indices closed in red zone. The STOXX Europe 600 Index finished 2.61% lower. The main continental indices saw losses of 2.26% for France's CAC 40 Index and 2.68% for Switzerland's SMI. The FTSE 100 Index fell by 2.19% in the UK, and Germany's DAX closed 2.48% lower.
The July purchasing managers' surveys for the Eurozone indicated that the recent economic recovery in the region is slowing down. Analysts at LBBW noted that Eurozone inflation, as measured by the harmonized consumer price index, is expected to decrease from 2.5% to 2.3%. If this prediction holds true, it will support the case for the ECB to cut interest rates. GDP data is anticipated to show that the second quarter was weaker than the first. Recent figures indicate that the Eurozone's economic recovery is beginning to waver, yet inflation continues to be high, which could complicate the European Central Bank's efforts. Most investors anticipate that the ECB will likely reduce interest rates next month, but they will be watching for forthcoming data to confirm this expectation.
Japan
Japan's Nikkei Stock Average experienced its steepest single-day decline in over four years on Friday, impacted by signs of a slowing U.S. economy and an interest-rate hike by the Bank of Japan. The Nikkei fell by 5.8%, closing at 35,909.70, marking its largest percentage drop since the onset of the Covid-19 pandemic in March 2020. The decline was particularly pronounced in semiconductor-related stocks, following Intel's announcement of a plan to cut costs by over $10 billion next year, which includes reducing capital expenditures and job cuts. Earlier this year, the Japanese stock market reached record highs, fueled by robust corporate earnings supported by a weak yen, the return of modest inflation, and improvements in corporate governance. A surge in chip-related stocks also contributed to the market's rise. The yield on the 10-year Japanese government bond dropped by 20.5 basis points to 0.750% as the anticipation of additional rate hikes by the Bank of Japan diminished. However, these factors have shifted recently. Since early July, the Japanese yen has been strengthening against the dollar, driven by a narrowing interest-rate gap between Japan and the U.S. USD/JPY was at 142.50, down from 146.57 late Friday in New York.
China
China is preparing to release trade and inflation data, along with another measure of the services sector's health. ING anticipates some tentative signs of improvement in the figures, which would be positive after a streak of disappointing data.
July's data is expected to show exports growing in the high single digits or low double digits, aided by a favorable base effect, with a slight recovery in import growth, according to economists. Inflation might have edged up slightly as well, ING noted.
Barclays economists predict that producer price index (PPI) deflation may have slightly lessened in July, given declines in purchasing managers' indexes (PMIs) for input and output prices, despite low base effects.
The services PMI will be closely watched on Monday after an unexpected drop in the manufacturing index. The central bank is expected to continue easing policies in the coming months. The Shanghai Composite Index was down 0.5%. In Hong Kong, the benchmark Hang Seng Index fell by 2.28%.