Global Stock Markets See Significant Sell-Off as US Non-Farm Payroll Figures Fall Below Expectations
In the past 48 hours, stock markets around the world have experienced a major sell-off, causing concern among investors. The trigger for this sell-off was the release of July’s US non-farm payroll figures, which came in significantly lower than expected. The data, which measures the number of jobs added to the US economy, showed a creation of 114,000 jobs, falling short of the expected 175,000 jobs. This is the weakest figure since December last year and the second lowest since March 2020, when the pandemic first began in the West.
The disappointing figures, coupled with a rise in the unemployment rate to 4.3%, have heightened fears of a potential recession in the world’s largest economy. These concerns were already brewing after the US Federal Reserve chose not to cut interest rates on Wednesday and reports the following day showed a contraction in US manufacturing activity during July.
As a result, all major US stock indices experienced a decline on Thursday, with the S&P 500 falling by 2.5%, the Dow Jones Industrial Average declining by 1.9%, the tech-heavy Nasdaq slumping by 3.3%, and the Russell 2000, which tracks smaller US companies, sliding by 3%. The downward trend continued on Friday, with the S&P 500 and Nasdaq on track for a third consecutive weekly fall. This puts the S&P 500 in “correction” territory, having fallen by more than 10% from its peak in July.
Individual stocks also saw significant declines, with Snap, the owner of Snapchat, dropping by 30% and chipmaking giant Intel down by 28%. British chip designer Arm Holdings, listed on the Nasdaq, saw a 6% drop and has lost nearly a quarter of its stock market value this week. Other tech giants, such as Amazon, also saw their stock prices fall by 12%.
The sell-off has also affected other asset classes, with the price of oil falling for the fourth consecutive week and gold, a traditional safe haven for investors, reaching close to its all-time high. US Treasuries, or government IOUs, have also risen sharply, with the yield on 2-year Treasuries falling below 4% for the first time since May last year and the yield on 10-year Treasuries hitting its lowest level since December last year.
Market experts and economists now anticipate an interest rate cut from the Federal Reserve next month. Seema Shah, chief global strategist at Principal Asset Management, expressed concern over the Fed’s policy, stating, “Oh dear, has the Fed made a policy mistake? The labour market’s slowdown is now materialising with more clarity.” She predicts a rate cut in September and hopes the Fed will not be “too slow to act.”
Michael Brown, market analyst at Pepperstone, also believes the Fed will cut rates in September, stating, “The July US jobs report pointed to a continued cooling in labour market conditions…There is little in this report that is likely to dissuade the Federal Reserve open markets committee from delivering this cycle’s first [interest rate] cut at the next meeting in September.”
While European stocks had already seen a decline on Thursday, they continued to fall on Friday. The FTSE-100 dropped by 2.15% since Wednesday evening, while other markets on the continent, such as the CAC-40 in Paris and the DAX in Germany, saw falls of 3.1% and 4.1%, respectively. Italian and Dutch markets also experienced significant declines in the same period.
In the Asia Pacific region, Japanese stocks saw a sharp sell-off due to a rally in the yen against the US dollar following a surprise interest rate rise by the Bank of Japan on Wednesday. The Nikkei 225 index, which contains Japan’s top blue-chip companies, fell by 5.8% on Friday, its biggest one-day fall since March 2020. The Nikkei is now down by 12% since 12 July, while the broader Topix index also experienced a 6.2% decline, its worst one-day fall since 2016.
The interesting aspect of this sell-off is the change in market reaction to economic news. In recent years, bad news for the economy was seen as good news for markets, as it would likely lead to central banks keeping interest rates low. However, with the normalization of interest rates over the past two years, bad news is now being treated as bad news for the markets.
