Global markets rocked by sell-off #CashNews.co

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The sell-off in global markets continued today as investors succumbed to the view that the US might be heading for recession, sending shares and other risky assets tumbling and leaving Japanese stocks suffering their worst day in 37 years.

The rout, fuelled by fears that the US Federal Reserve has been too slow to react to a slowdown in the world’s strongest economy, was stoked on Friday by a weaker than expected jobs report. This added to investor concerns about the outsize influence of just a small handful of tech stocks — America’s Magnificent Seven — all of which fell sharply at today’s US open. Signs that the long American consumer boom may be over have also added to the mix. 

Other market reaction today included oil prices losing all of this year’s gains as the US growth concerns hit key commodities and a plunge in cryptocurrency prices.

US and European equities pared back some of their losses later in the day after encouraging data on US services eased some of the fears of recession.

The Fed kept rates on hold last week, but the severity of the reaction to the jobs data suggests investors believe the central bank may have made a mistake in not announcing a reduction. Markets are now betting on 1.25 percentage points of cuts by the end of the year, as well as a possible unscheduled emergency cut before the Fed’s next meeting in September.

Concerns are not restricted to the US. Survey data from China and the Eurozone have painted pictures of faltering recoveries, especially in manufacturing, while geopolitical tensions, including the increasingly violent rhetoric between Israel and Iran, have added to the jitters.

You can read more on the causes of the global tumult in this explainer, but the biggest market impact so far has been in Japan, which today suffered the sharpest sell-off in stocks since “Black Monday” in 1987. 

The situation has been complicated by Japan’s shift away from negative-rate policies, which began in March and accelerated last week, causing chaos in currency markets. Its more hawkish monetary policy has contrasted with expectations for a dovish shift in the US, causing an unwinding of “carry trades” in which investors borrow in a country with low rates to invest in one with high rates.

Surging foreign ownership of Asia’s chipmakers, thanks to the artificial intelligence boom, has also contributed to market volatility in the region, says the FT’s Lex column. (You can read more on Japan’s fierce market correction in this analysis from Asia business editor Leo Lewis).

The FT’s Unhedged newsletter (for Premium subscribers) has a simple message for investors: keep calm.

There are reasons to believe Friday’s job numbers are anomalous, it argues, while growth figures and other data suggest the US economy is doing fairly well. “The question of whether we are experiencing post-pandemic normalisation or something more worrisome is still open,” it concludes.

Whether investors will take its advice is another matter: the Vix index of share volatility — dubbed Wall Street’s “fear gauge” — this morning hit its highest level since the pandemic, signalling that more turmoil could yet be in store.

Visit our live blog for continuing updates on global markets

Need to know: UK and Europe economy

UK chancellor Rachel Reeves is visiting the US and Canada to sell Britain as “a stable place to do business” ahead of an international investment summit in mid-October. The government has wealthier over-65s in its sights as it tries to close a £22bn hole in the public finances

FT deputy editor Patrick Jenkins questions the notion that the UK should copy other countries by directing more pension savings into domestic investments. Instead, ministers should try to boost auto-enrolment contributions, he argues.

EU member states are likely to back tariffs on Chinese electric cars, according to trade chief Valdis Dombrovskis. The Trade Secrets newsletter (for Premium subscribers) discusses the contenders to replace Dombrovskis when he stands down in November.

A cargo ship, possibly part of Moscow’s “dark fleet” transporting liquefied natural gas, has been spotted at a Russian terminal in what appears to be an attempt to circumvent US sanctions.

Need to know: Global economy

In the latest Economics Show podcast, FT commentator Chris Giles talks to Soumaya Keynes about the arguments raging between academics and economists on how best to measure income inequality.

Chinese emigration to Malaysia has doubled over the past three years, fuelled by an increase in students and new investors. China’s slowing economic growth as well as a more heavy-handed approach to business have driven more of its citizens to seek new lives abroad.

Need to know: Business

Elon Musk revived his legal fight against OpenAI and its chief executive Sam Altman, accusing the artificial intelligence company that he co-founded of compromising its mission to benefit humanity.

Albemarle, the world’s largest lithium producer, urged governments to tackle Chinese dominance of the market for the minerals that power electric cars. A sharp downturn in prices has made it harder for western groups to compete with Chinese companies because of their cheaper costs. Rio Tinto is trying to cut reliance on China through a new start-up in Australia.

Big US private capital groups such as Apollo and Blackstone are increasing investments as they prepare for a dealmaking revival.

Boycotts of western food and drinks brands in Muslim countries over companies’ perceived support for Israel’s war in Gaza are hitting bottom lines and exacerbating the impact of a global consumer slowdown.

Silicon Valley tech chiefs who back Donald Trump for the US presidency are making a big mistake, writes Sequoia Capital’s Michael Moritz.

Delaware has for more than a century been the favoured legal home of many of America’s top companies. That could be about to change after a tussle involving Elon Musk’s Tesla. A Big Read explains.

The World of Work

Bolt, the European ride-hailing rival to Uber, has begun offering UK drivers more benefits ahead of a court hearing next month on their employment status. The changes mean that Bolt drivers will have the rights afforded under UK law to workers, even though the company maintains they are self-employed independent contractors. 

Modular furniture and adaptive architecture — from pods and moveable meeting rooms to whole floor plans built from click-together walls — are allowing companies more flexibility to balance large open-plan offices with space for privacy.

Some good news

An onager wild ass, a relative of the donkey and one of the rarest mammals in the world, has been born at Chester Zoo in the UK. The animals only survive in the wild in two small, protected areas in Iran.