KEY TAKEAWAYS
- The global markets sell-off is deepening as worries of an impending U.S. recession loom.
- U.S. stock futures fell and volatility surged Monday, following Friday’s U.S. markets rout triggered by a weaker-than-expected jobs report.
- Wall Street’s “fear gauge,” the VIX index of implied stock market volatility, hit its highest levels since early 2020, when the COVID-19 pandemic was spreading.
- Japan’s Nikkei Stock Average notched its biggest single-day percentage point drop since 1987’s “Black Monday” crash.
The global markets sell-off is deepening as worries of an impending U.S. recession loom, extending losses late last week on worries that the country may be heading to a major slowdown.
Following Friday’s U.S. markets rout triggered by a weaker-than-expected jobs report, U.S. stock futures fell and volatility surged Monday, with Wall Street’s “fear gauge,” the VIX index of implied stock market volatility, hitting its highest levels since early 2020, as the COVID-19 pandemic spread.
In Asia, Japan’s Nikkei Stock Average closed down 12.4% in its biggest single-day percentage fall since 1987’s “Black Monday” crash.
Magnificent Seven stocks tumbled in pre-market trading, with AI darling Nvidia (NVDA) falling over 13%. Shares of Apple (AAPL)—also hit by news over the weekend that Warren Buffett‘s Berkshire Hathaway (BRK.A, BRK.B) further cut its stake in the iPhone maker—were down nearly 8%.
Investors Flee Risk for Safety of Bonds
Money is piling into bonds as investors seek the safety of Treasurys. The U.S. 10-year yield was down at 3.74% amid worries the Federal Reserve, which kept interest rates unchanged at its meeting last week, has been too slow to boost growth.
UBS in a note Monday said it now anticipates 100 basis points of rate cuts this year, up from 50 basis points previously, while traders are increasingly forecasting an emergency rate cut even before the September meeting.
“US equities and bond yields fell in tandem on Friday due to weak US jobs data, raising concerns that the Fed may have delayed rate cuts too long, risking a recession,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note Monday.
Japan’s Nikkei Also Hit by Rising Yen
Adding to pressure on Japanese stocks beyond concerns about the U.S. economy’s outlook is the rising yen, which makes the export-depended country’s goods more expensive. The yen has been rising since Tokyo ended its negative interest rate regime and then raised its benchmark rate at the end of July to the highest level since 2008.