Global stock markets plummeted on Monday due to concerns about a potential U.S. Recession. The UK’s FTSE 100 ended the day down over 2%, marking its worst performance since July 2023, while the FTSE 250 fell 2.83%.
European exchanges, including those in France, Germany, Portugal, and Spain, also experienced declines ranging from 2% to 4%.
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What occurred in the U.S.?
As anticipated, all major U.S. stock indexes declined sharply from the opening bell to the close. The Nasdaq Composite, which is heavily weighted with technology stocks, fell 3.4%, its lowest point since early May. The S&P 500, known for its stable and profitable companies, dropped 3%, marking its worst performance since September 2022. The Dow Jones Industrial Average (DJIA) ended down 2.6%.
These declines follow recent record highs; the Nasdaq and Dow Jones had set new records in July, while the S&P 500 had reached a peak in February. The drop was influenced by seven top-performing tech firms—Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla.
The sell-offs extended beyond stock markets, with Bitcoin, the leading cryptocurrency, falling to a level not seen since February, valued at $54,650.
A bright spot
Motorists saw a positive development as oil prices dropped to $76.62 per barrel for Brent crude, a level not seen since January.
Asia
The declines in global markets were significant, with Japan’s Nikkei 225 falling over 12% by the close, its steepest drop since “Black Monday” in October 1987. South Korea’s Kospi index fell more than 9%, and Taiwan’s Taiex dropped 8.4%. Additionally, markets in Singapore, Indonesia, Thailand, and the Philippines saw declines of around 2% to 3%.
These drops led some exchanges to implement circuit breakers, halting trading for 20 minutes. The declines followed disappointing U.S. jobs data for July, which showed only 114,000 new jobs created compared to the expected 175,000. This figure was the weakest since December and the second weakest since the onset of the COVID pandemic.
Robert Carnell of ING noted that the market is interpreting U.S. economic conditions as signaling a potential recession. The U.S. Federal Reserve’s decision on Wednesday to maintain interest rates at 5.25% to 5.5% further unsettled markets, which had anticipated a rate cut in September.
Goldman Sachs now estimates a 25% chance of a U.S. recession, up from 15%, while JPMorgan is more pessimistic, predicting a 50% chance. Global concerns are heightened by worries about China’s economic strength and weak earnings reports from major tech firms. Additionally, Japan’s central bank raised its benchmark interest rate, further impacting markets.
Danni Hewson from AJ Bell commented that the U.S. jobs data, combined with mixed earnings reports and concerns about tech spending on AI, significantly impacted markets. The London FTSE 100 also experienced losses, with only a few companies gaining ground amidst a broad downturn.
Disorder Impact
Ms. Hewson noted that recent riots in the UK could negatively affect consumer confidence and foot traffic, which are vital for retail and hospitality businesses. She also pointed out potential insurance claims due to damage from the riots, emphasizing that this situation is highly detrimental for an already struggling UK economy.
Derren Nathan, head of equity research at Hargreaves Lansdown, remarked that the FTSE 100’s decline reflects concerns that a minor issue in the U.S. could escalate into a more significant problem. Exporters were hit hardest as fears of a recession resurfaced following poor U.S. employment and manufacturing data. The discussion about the Federal Reserve’s rate decision has shifted from whether to cut rates to how much, with expectations now leaning towards a half-point reduction.
Additionally, worries about a potential U.S. recession and ongoing Middle East tensions have contributed to a drop in oil prices, with Brent crude falling more than 1.2% to just under $76 (£60) on Monday morning.
