Global stock markets experienced significant declines on Monday as concerns about a potential recession in the US caused investors to sell off their holdings. The UK’s FTSE 100 index closed down more than 2%, marking its worst day since July 2023. The FTSE 250 index also dropped by 2.83% by the end of the trading day.
Other European exchanges, including those in France, Germany, Portugal, and Spain, also saw declines of between 2% and 4%.
The drop in global markets was sparked by a sharp decline in the US stock market. As expected, all major US stock indexes fell at the opening bell and continued to drop throughout the day. The tech-heavy Nasdaq Composite index closed down 3.4%, its lowest level since May. The S&P 500, which tracks stable and profitable companies, saw a 3% decline, its worst day since September 2022. The Dow Jones Industrial Average (DJIA), which includes 30 major companies, also ended the day down 2.6%.
While these declines came from record highs, with the Nasdaq and Dow Jones setting new records in July, they are still significant. The sell-off was largely driven by a few high-performing tech companies, such as Apple, Google parent company Alphabet, Amazon, Meta, Microsoft, AI-microchip maker Nvidia, and electric car producer Tesla.
The decline in stock markets was not limited to just the US. Cryptocurrency Bitcoin also saw a decline, reaching a level not seen since February at $54,650 per Bitcoin.
However, there was some positive news for motorists as the price of oil fell to $76.62 per barrel of benchmark Brent crude, the lowest it has been since January.
Earlier in the day, Asian markets also experienced steep drops. Japan’s Nikkei 225 share index saw a decline of more than 12%, its biggest fall since “Black Monday” in October 1987. South Korea’s Kospi index dropped by over 9%, while Taiwan’s Taiex exchange slipped by 8.4%. Other markets, including those in Singapore, Indonesia, Thailand, and the Philippines, also saw declines ranging from 2% to 3%. Some exchanges even had to trigger circuit breakers, halting trading for 20 minutes, due to the steep declines.
The drop in global markets was sparked by weaker-than-expected US jobs market data released on Friday. Only 114,000 jobs were created in July, significantly lower than the forecasted 175,000. This figure was the weakest since December 2020 and the second weakest since the start of the COVID pandemic in March 2020.
Robert Carnell from ING noted, “What we are looking at now is a situation where the market is viewing what’s going on in the US macro economy as ticking the recession box.”
These concerns were further amplified by the US Federal Reserve’s decision last Wednesday to not cut interest rates, which have been held at 5.25% to 5.5% since July last year. However, many analysts expect the central bank to make a cut in September.
Goldman Sachs economists now estimate a 25% chance of a recession in the US, up from their previous estimate of 15%. JPMorgan analysts are even more pessimistic, putting the probability of a recession at 50%.
Investor concerns have also been heightened by worries about the strength of China’s economy and weak earnings reports from major tech companies last week. There is growing unease about the potential returns from investments in AI.
Japanese markets have also been falling since the country’s central bank raised its benchmark interest rate from zero to 0.25% last Wednesday.
Danni Hewson from investment platform AJ Bell noted, “Friday’s [US] jobs figures dropped like a bucket of cold water on markets already chilled by mixed earnings updates and concern about levels of spending by big tech companies on AI plans.”
She also mentioned that recent riots in the UK were likely to impact consumer confidence and footfall levels, which are crucial to retailers and hospitality venues. The damage caused by these riots could also result in insurance claims, adding further strain to the UK economy.
Derren Nathan, head of equity research at Hargreaves Lansdown, stated, “The FTSE 100 has opened down as the US sneeze risks becoming a cold. Exporters bore the brunt of the sell-off as contagion from last week’s poor employment and manufacturing data in the States put recessionary fears back on the table.”
He also noted that the discussion around the Federal Reserve’s rate decision has shifted from “if” to “how much,” with the odds now favoring a half-point cut in September.
The fears of a possible US recession, along with ongoing tensions in the Middle East, have also caused the price of oil to decline. The benchmark Brent crude oil fell by more than 1.
