Global stocks plunge, bond prices rally as US data spooks
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[August 03, 2024] By
Chris Prentice and Naomi Rovnick
NEW YORK/LONDON (Reuters) -Surprisingly weak U.S. employment data on
Friday stoked fears of a recession ahead, prompting investors to dump
stocks and turn to safe-haven bonds.
Treasury prices surged, sending yields to multi-month lows.
Oil price benchmarks fell by more than $3 per barrel at their session
lows. The U.S. dollar index dropped over 1% to its weakest since March.
Richly valued technology firms bore much of the pain, and an index of
European bank stocks headed for its largest weekly decline in 17 months
on soft earnings.
The VIX stock market volatility measure, dubbed Wall Street's fear
gauge, surged over 40%.
Friday's U.S. jobs report showed job growth slowed more than expected in
July and unemployment increased to 4.3%, pointing to possible weakness
in the labor market and greater vulnerability to recession.
Markets were already rattled by downbeat earnings updates from Amazon
and Intel and Thursday's softer-than-expected U.S. U.S. factory activity
survey in addition to the monthly U.S. non-farm payrolls report, which
showed job growth slumped to 114,000 new hires in July from 179,000 in
June.
The data raised expectations of multiple rate cuts by the Federal
Reserve this year, which just this week opted to keep rates unchanged.
"The jobs data are signaling substantial further progress that the
Federal Reserve made a policy error by not reducing the fed funds rate
this week," said Jamie Cox, managing partner for Harris Financial Group
in Richmond, Virginia.
"It’s very possible the Fed alters its inter-meeting communications on
the balance of risks to remove all doubt about a September rate cut. "
With thin summer trading likely exaggerating moves, a slump that began
in Asia with a 5.8% drop for Japan's Nikkei, its biggest daily fall
since March 2020 during the COVID-19 crisis, rippled through Europe and
headed for Wall Street.
MSCI's gauge of stocks across the globe fell 16.09 points, or 2.00%, to
787.31.
The Nasdaq Composite lost 417.98 points, or 2.43%, to 16,776.16. The
index has fallen more than 10% from its July closing high, confirming it
is in a correction after concerns grew about expensive valuations in a
weakening economy.
The Dow Jones Industrial Average fell 610.71 points, or 1.51%, to
39,737.26, the S&P 500 lost 100.12 points.
Europe's STOXX 600 fell close to 3%, with financials and technology the
worst hit.
Emerging market stocks fell 24.30 points, or 2.23%, to 1,063.50.
MSCI's broadest index of Asia-Pacific shares outside Japan closed 2.48%
lower 2.48%, at 553.72, while Japan's Nikkei fell 2,216.63 points, or
5.81%, to 35,909.70.
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Traders work on the floor at the New York Stock Exchange (NYSE) in
New York City, U.S., June 24, 2024. REUTERS/Brendan McDermid/File
Photo
The Fed has kept benchmark borrowing costs at a 23-year high of
5.25%-5.50% for a year, and some analysts believe the world's most
influential central bank may have kept monetary policy tight for too
long, risking a recession.
Money markets on Friday rushed to price a 70% chance of the Fed,
which was already widely expected to cut rates from September,
implementing a jumbo 50 basis points cut next month to insure
against a downturn.
The "employment report flashes a warning signal that this economy
does have the ability to turn rather quickly," said Charlie Ripley,
Senior Investment Strategist for Allianz Investment Management in
Minneapolis.
"Ultimately, today’s employment data should embolden the committee
to cut policy by more than 25 basis points at the next meeting."
RUSH AWAY FROM TECH, TO SAFE HAVENS
Shares in U.S. chipmaker Intel tumbled to a more than 11-year low
and finished down over 26%, after suspending its dividend and
announcing hefty job cuts alongside underwhelming earnings
forecasts.
Artificial intelligence chipmaker Nvidia, one of the biggest
contributors to the tech rally, dropped 1.8%
Up more than 700% since January 2023, Nvidia has left many asset
managers with an outsized exposure to the fortunes of this single
stock.
Safe-haven buying went full throttle, with government debt, gold and
currencies traditionally all rallying. They are assets viewed as
likely to hold value during market chaos.
The yield on benchmark U.S. 10-year notes fell 18 basis points to
3.798%.
The 2-year note yield, which typically moves in step with interest
rate expectations, fell 28.5 basis points to 3.8798%.
In foreign exchange markets, the yen added nearly 2%, extending a
rapid bounceback after the Bank of Japan raised interest rates to
levels unseen in 15 years.
In commodities, spot gold lost 0.37% to $2,436.31 an ounce and U.S.
gold futures settled 0.4% lower to $2,4769.8.
Oil prices took a hit on the growth worries, with global benchmark
Brent futures settled down $2.71, or 3.41%, to $76.81 a barrel. U.S.
West Texas Intermediate crude futures finished down $2.79, or 3.66%,
at $73.52.
(Additional reporting by Rae Wee in Singapore; Editing by Alex
Richardson, Marguerita Choy, Deepa Babington and Chizu Nomiyama)
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