Market snapshot: US fears trigger global stock slump

Investor sentiment turned on its head as recessionary fears surfaced, following a slew of corporate and economic data which brought into question whether the Federal Reserve is now behind the curve.

Initial jobless claims in the US rose by the most in a year, while those claiming benefits jumped to a level not seen since November 2021. In addition, the ISM manufacturing index fell to 46.8%, signalling a contraction while also being worse than the expected figure.

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Even though Fed chair Jerome Powell signalled earlier in the week that a rate cut was likely in September, the concern is now that the US central bank may have missed the boat and that the idyllic economic soft landing will not be achieved.

In turn, traders began to speculate whether such a cut in September would rise to 0.5% from the previously expected 0.25% in an effort to stem the tide. The changing backdrop puts additional emphasis on the non-farm payrolls report later today, where it is expected that 185,000 jobs will have been added in July, compared to 206,000 the previous month, with unemployment remaining steady at 4.1%. Any notable deviation from these numbers will be market-moving, especially a weak reading which would exacerbate fears of an impending recession.

Nor was there any respite from company earnings, with Boeing Co (NYSE:BA) shares falling by over 6% given those recessionary fears. Meta Platforms Inc Class A (NASDAQ:META) was a rare exception as it added almost 5% on stronger than expected numbers, whereas NVIDIA Corp (NASDAQ:NVDA) lost close to 7% as part of a broad sell off of equities.

The momentum spilled over into after-hours trading, with the likes of Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and Intel Corp (NASDAQ:INTC) reporting. Amazon shares fell by 4.5% on a weaker outlook, while Intel dropped 20% after a sombre outlook which included its pausing the dividend as well as laying off thousands of employees as part of a general cost cutting drive.

Declines in the main indices were striking, but each has the cushion of a strong performance over the last few months which has protected gains. In the year to date, the Dow Jones remains up by 7.1%, the S&P 500 by 14.2% and the Nasdaq by 14.5%.

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Market moves across Asia were equally downbeat, prompted by the Wall Street sell-off and then worsened by local news. In China, a manufacturing report at 49.8 compared to an expectation of 51.5 signalled a contraction, leading to further investor exasperation given the weak economic backdrop and the lack of meaningful stimulus from the authorities.

Japan’s Nikkei index fell sharply by around 6% at one stage, with rising interest rates and some strength in the yen both weighing on shares. In particular, the currency strength worked against the country’s main exporters alongside the potential damage to tourism, both of which have been mainstays of the market’s recent and prolonged recovery. 

Inevitably, investor malaise from around the globe spilled over to the UK, with the main indices opening in the red. The markdown was broad for the premier index, with those companies with direct or indirect exposure either to the US or indeed the tech sector at the forefront of the list of losers.

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There was some solace from the performance of British Airways owner International Consolidated Airlines Group SA (LSE:IAG), whose shares rose following a promising update yesterday which included the reinstatement of a dividend payment, signalling management confidence in prospects. In addition, the group’s decision not to pursue the acquisition of Air Europa was also well received, potentially freeing up some more capital to deal with the debt pile accumulated during the pandemic.

Despite a cut in interest rates yesterday, the Bank of England’s accompanying comments implied that any further reductions this year are unlikely, which in turn limits the effects on an economy which has struggled for meaningful growth. The FTSE 250 was markedly lower at the open as a result, although in the year to date the index is still ahead by 7.5%, with the FTSE 100 up by 6.5% as it faltered again in its quest to retain the record levels seen in May.