Stock markets across Europe and Asia plummeted on Monday, driven by growing concerns that the US economy is heading for a slowdown.
In London, the FTSE 100 index opened 2.3% lower, while the Euronext 100 tumbled by 3.5%. These declines followed sharp falls across Asia, with Japan’s Nikkei 225 dropping 12.4% or 4,451 points, marking the largest fall by points in its history.
The downturn was triggered by weak US jobs data released on Friday, which sparked fears about the health of the world’s largest economy. The yen has also been strengthening against the US dollar since the Bank of Japan raised interest rates last week, making Tokyo stocks more expensive for foreign investors.
Stock markets in Taiwan, South Korea, India, Australia, Hong Kong, and Shanghai all saw significant declines. Weaker-than-expected economic data from the US has fueled speculation that the country is experiencing a slowdown. Additionally, the US Federal Reserve decided against cutting interest rates last week, contrasting with other central banks like the Bank of England. Major American companies such as Amazon and Intel also reported disappointing financial results.
Official employment data showed that US employers added 114,000 jobs in July, far fewer than expected, while the unemployment rate ticked up. Shanti Kelemen, chief investment officer at M&G Wealth, told the BBC’s Today programme: “[There are] just some signs that potentially the market is slowing down a bit. I think that also spooked some people on Friday, and you’re also seeing the Japanese market react to those things that happened last week.”
Kei Okamura, a Tokyo-based portfolio manager at investment firm Neuberger Berman, noted that in Asia, “the selloff was instigated by the sharp appreciation of the [yen] as global investors turned cautious on Japanese corporate earnings, especially that of exporters such as automakers.” The Japanese currency has strengthened more than 10% against the US dollar over the last month, making Japanese goods more expensive and less attractive to overseas buyers.
The Bank of Japan lifted interest rates last week to the highest level since the global financial crisis in 2008. Inflation in Japan rose more than expected in June, while the economy shrank in the first three months of the year due to a weaker yen and poor household spending.
Elsewhere in the Asia-Pacific region, Taiwan’s main share index and South Korea’s Kospi both fell more than 8%. India’s NSE Nifty 50 was trading 2.8% lower, and Australia’s S&P/ASX 200 was down about 3.6%. Hong Kong’s Hang Seng dropped 2.5%, while the Shanghai Stock Exchange fell 1.4%.
Cryptocurrencies were also affected, with Bitcoin dropping to around $50,000, its lowest level since February.
On Friday, stocks in New York fell sharply following the disappointing jobs data, which also showed downward revisions for employment in May and June. The figures for July raised concerns that the long-running jobs boom in the US might be coming to an end, fueling speculation about when and by how much the Federal Reserve will cut interest rates.
Despite recent data showing that the US economy expanded at an annual rate of 2.8%, there are fears of an impending slowdown. Ms. Kelemen stated: “You can pick out evidence to create a positive story, you can also pick out the evidence to create a negative story. I don’t think it universally points to one direction yet.”
Stock markets were already anxious about high borrowing costs and signs that a long-running rally in share prices, partly fueled by optimism over artificial intelligence (AI), might be losing steam. Friday’s decline in the Nasdaq brought the index down about 10% from its most recent peak, a fall known as a “correction” that happened in a matter of weeks. The Dow Jones Industrial Average also dropped 1.5% on Friday, and the S&P 500 ended 1.8% lower.
Adding to the market jitters, veteran US investor Warren Buffett’s firm Berkshire Hathaway revealed over the weekend that it had sold about half its stake in US technology giant Apple.
