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Markets Around the World Are Jolted by Fears of Slowing U.S. Growth

A rout that began in Asia continued in Europe, and U.S. stocks are set to fall. Japan’s benchmark index logged its worst single-day point decline.

Stocks in Japan fell hard on Monday for a third straight day.Credit...Richard A. Brooks/Agence France-Presse — Getty Images

Stocks in Japan fell hard on Monday for a third straight day.Credit...Richard A. Brooks/Agence France-Presse — Getty Images

sell-off in markets around the world turned into a rout on Monday as investors grew panicky about signs of a slowing American economy.

The moves were a sharp reversal in major stock markets, which for much of the past year have risen to new heights, propelled by optimism about cooling inflation, solid labor markets and the promise of artificial intelligence technology. As stocks tumbled across Asia, Europe and the Americas, few sectors spared as investors cashed out and sought refuge from the broad-based slump.

The declines were especially pronounced in Japan. The Nikkei 225 index dropped 12.4 percent, as economic fears added to concerns about a strengthening yen’s effects on corporate profits. It was the benchmark index’s biggest one-day point decline, larger than the plunge during the Black Monday crash in October 1987.

The unease then spread to Europe, where the Pan-European Stoxx index fell about 3 percent, with every major market on the continent recording declines.The losses were set to continue in the United States. Stock futures for the S&P 500 were down more than 3 percent, and those for the Nasdaq fell more than 5 percent.

The drops followed a U.S. jobs report on Friday that showed significantly slower hiring in July, with unemployment rising to its highest level in nearly three years. This deepened fears that the world’s largest economy was stumbling and that the Federal Reserve may have waited too long on cutting interest rates.

At their meeting last week, Fed officials held interest rates at a two-decade high, where they have remained for a year. The central bank’s policymakers are set to meet again in mid-September.

Based on the weakness in the U.S. jobs report, Goldman Sachs said in a note that it now expected the Fed to cut rates at its next three meetings — in September, November and December — a more aggressive timetable for cuts than the investment bank had previously expected. Analysts at the bank raised their forecast for the probability of a U.S. recession in the next 12 months to 25 percent, up from 15 percent.

South Korea’s benchmark Kospi index fell more than 10 percent at one point. Equity markets in Taiwan, Singapore, Australia, Hong Kong and mainland China were all lower. Stocks in India, one of the best-performing markets in Asia this year, traded more than 2 percent lower.Technology shares were hit particularly hard. The chip giants Samsung Electronics and Taiwan Semiconductor Manufacturing Company each fell 10 percent in Asia. European semiconductor players like ASML of the Netherlands and STMicroelectronics of Switzerland also fell. Futures for Nvidia and Intel, which are listed in New York, were lower.

The VIX, an index that measures stock market volatility, soared to its highest level since early 2020, when it jumped during the market meltdown in the early stages of the coronavirus pandemic. The index is known as Wall Street’s “fear gauge,” because it reflects investors’ uncertainty over the direction of markets.

Bitcoin, the biggest cryptocurrency, plummeted more than 10 percent in another sign of investor anxiety.

At one point, the plunge in Japanese and Korean stocks tripped a “circuit breaker” mechanism that halts trading to allow markets to digest large fluctuations. But even after those mandatory breathers, the sell-off in stocks seemed to accelerate: The Topix index, which includes companies that represent a broad swath of Japan’s economy, fell 12.2 percent. Jitters also spread to the debt market, prompting a halt in trading in Japanese government bonds as well.“The market response is a reflection of the deteriorating U.S. economic outlook,” said Jesper Koll, a director at financial services firm Monex Group. “It was a New York sneeze that forced Japanese pneumonia.”

 
Year-to-date performance of Japan’s Topix index

Source: FactSet / By The New York Times

 

Mr. Koll said the prognosis is more bleak for Japan, because a strengthening yen will be a drag on corporate profits especially for many of the country’s biggest companies that rely on selling abroad. He said investors would usually swoop in to pick up stocks when prices fell significantly, but “what is concerning is that we are not seeing buyers.”

The Topix is down more than 20 percent from last Wednesday, when the Bank of Japan raised interest rates for only the second time in nearly two decades. The sell-off erased all of the year’s gains, and then some.

Japanese stocks have been on a tear for more than a year, fueled by a weak Japanese yen. The yen’s depreciation had helped to inflate the earnings of Japanese exporters, but the currency has strengthened considerably over the past week.

Adding to the pressure, foreign investors have started selling off positions in Japanese stocks over the last few weeks. In the most recent data from the Tokyo Stock Exchange, foreign investors sold nearly $4 billion more in Japanese equities than they purchased during the week ending July 26. In the week prior, they were net sellers of $1.5 billion of equities.

John Liu contributed reporting from Seoul.

Daisuke Wakabayashi is an Asia business correspondent for The Times based in Seoul, covering economic, corporate and geopolitical stories from the region. More about Daisuke Wakabayashi

River Akira Davis covers Japan, including its economy and businesses, and is based in Tokyo. More about River Akira Davis

Author: Daisuke Wakabayashi and River Akira Davis

Source: N.Y Times

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