Stock markets around the world are in turmoil after a possible US recession

Stock indices plummet and the dollar and euro lose 2% against the yen this Monday, August 5, as investors became increasingly concerned about the possibility of a recession in the United States.

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How are the stock markets in Europe?

In Europe, major stock markets opened lower, dragged down mainly by banking and technology stocks, following the falls recorded hours earlier in Asia.

Frankfurt lost more than 3% shortly after the opening, Paris fell by 2.6% and London by 2.3%. Madrid dropped by 2.8% and Milan by 4%.

Why are stock markets around the world falling?

“The trigger: a US jobs report” released on Friday, which sent “stocks and bond yields” tumbling on Wall Street, explained Stephen Innes, an analyst at SPI Asset Management.

The US unemployment rate rose more than expected in July, to 4.3%. This is the highest unemployment rate in the country since October 2021.

Following this publication, government bond yields fell sharply, This suggests that the US Federal Reserve (Fed) could cut its rates more drastically than expected.

If the Fed “makes its first rate cut of 50 basis points” in September, instead of the 25 basis points expected by the market, “it will be its way of admitting” that it has taken too long to ease monetary policy, Innes believes.

For their part, Deutsche Bank analysts point out that the magnitude of the market’s anticipation of the number of Fed rate cuts “in the next 12 months has only been seen during a recession.”

In the debt market, US yields, which move in the opposite direction to bond prices, continued to fall, reaching 3.76% at 07:25 GMT, compared with 3.79% for 10-year bonds on Friday, reflecting investors’ interest in safer securities than stocks, which are considered a risky asset.

Stock market crashes in Asia

The decline in Asian stock markets was much more pronounced. Tokyo plunged. The Nikkei 225, its main index, which had already fallen 5.8% on Friday, lost 12.4%, or 4,451.28 points, on Monday to close at 31,458.42 points, breaking its record for losses dating back to the stock market crash of October 1987.

The broader Topix index fell 12.23 percent to 2,227.15 points.

Taiwan fell more than 8% and Seoul more than 9%. Chinese stock markets fell more moderately, with Hong Kong’s Hang Seng index down 2.13% in late trading.

The Shanghai Composite Index fell 1.54% and the Shenzhen Composite Index fell 1.85%.

“The immediate trigger for this risk aversion appears to be the unexpected interest rate hike” announced by the Bank of Japan on Wednesday, according to Dilin Wu, a strategist at Pepperstone.

This monetary tightening after years of negative interest rates, combined with a slowdown in economic activity in the United States, precipitated the rise of the yen, which was also supported by the interventions of the Japanese central bank in the foreign exchange market.

The Japanese currency, which was trading at almost 162 yen per dollar in July, rebounded on Monday to 141.73 yen per dollar, a level not seen since early January, from 146.52 yen recorded on Friday in New York.

A stronger yen is a negative factor for Japanese exporters.

In the foreign exchange market, The dollar fell 2.17% to 143.35 yen on Monday, while the euro fell 1.99% to 156.72 yen.

Bitcoin fell 11.70% to $52,217.

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