Tokyo led a collapse across Asian and European equities on Monday, after weak US jobs data fanned fears of a recession in the world’s top economy and boosted bets on several US Federal Reserve (Fed) interest rate cuts.
The US economy added just 114,000 jobs last month, well down from June and far fewer than expected, while the jobless rate rose to the highest level since October 2021, a much-anticipated report on Friday showed.
The news came a day after lackluster factory data that stoked concerns that Fed officials might have held borrowing costs at more than two-decade highs too long.
Photo: Kimimasa Mayama, EPA-EFE
That has led to speculation the economy could be in for a hard landing and tip into recession.
Some analysts pointed to the “Sahm rule,” which says an economy is in the early stages of recession if the three-month moving average of unemployment is 0.5 percentage points above its low over the previous 12 months. That was triggered by Friday’s data.
The losses in New York on Friday were followed in Asia, with Tokyo’s Nikkei 225 tanking 12.4 percent in its worst day since the Fukushima crisis in 2011. It also recorded its biggest points loss, shedding 4,451.28.
Seoul and Taipei plunged more than eight percent each, while Singapore gave up nearly five percent and Sydney more than three percent.
Futures trading was temporarily suspended on the Nikkei and TOPIX indexes on the Osaka Exchange and in Seoul in a bid to ease volatility.
Hong Kong and Shanghai lost more than one percent, with traders brushing off a set of directives released by China aimed at boosting household consumption in the world’s number two economy.
There were also big losses in Mumbai, Bangkok, Manila, Jakarta and Wellington.
European markets also opened lower yesterday, with Germany’s DAX down 2.3 percent and the CAC 40 in Paris losing 1.9 percent, while the FTSE 100 in London was 2.1 percent lower.
Darkening the outlook for trading on Wall Street, the futures for the S&P 500 early yesterday was 2.5 percent lower and that for the Dow Jones Industrial Average was down 1.6 percent.
Markets are “still reeling from last Friday’s seismic shifts in the global financial landscape,” SPI Asset Management managing partner Stephen Innes said in his Dark Side Of The Boom newsletter.
“The trigger? A US employment report that missed the mark so badly it didn’t just drop jaws — it dropped stocks and bond yields while sending volatility and rate cut expectations through the roof.”
Innes said that “the mood was already souring in Asia” following a disappointing batch of earnings from tech titans such as Tesla Inc and Alphabet Inc, and a rate hike by the Bank of Japan and more weak Chinese economic data.
“Mix these, and you have the perfect market meltdown recipe,” Innes said.
The selling was also making officials in Tokyo sit up, because the losses yesterday followed a 5.8 percent drop on Friday last week.
Japanese Minister of Finance Shunichi Suzuki told reporters the government would “monitor developments in domestic and international financial markets with a high sense of urgency.”
It is best if the value of the yen changes “in a stable manner,” and the government would also “continue to monitor movements in the exchange rate,” he said.
The yen broke through 143 per US dollar for the first time since January, as the jobs report ramped up expectations that the Fed would slash rates.
The US central bank had signaled after its latest meeting on Wednesday that slowing inflation and a softening labor market meant it could cut next month, with traders predicting two or three 25-basis-point reductions before January next year.
Now there is speculation it would lower rates by a full percentage point in that time.
“The Fed doesn’t meet again until September 18. There is one more payrolls report and two [consumer price indexes] before then,” National Australia Bank senior economist Taylor Nugent said. “It’s hard to imagine they could stop the Fed cutting in September, with interest instead on whether they support a 50-basis-point move and how rapid cuts will be going forward.”
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