On Friday, after the unexpectedly disappointing U.S. July nonfarm payrolls report, although market expectations for a rate cut rose sharply, recession concerns have replaced the prospect of a rate cut as the dominant factor in the market.
Data showed that U.S. job growth slowed more than expected in July and the unemployment rate unexpectedly rose to 4.3%, suggesting possible cracks in the labor market. The day before, the further contraction of U.S. ISM manufacturing activity and a record high in initial jobless claims had already caused panic, and the market seemed to have switched to "bad news is bad news" mode.
Traders have now fully priced in more than four 25 basis point rate cuts this year. On Friday, U.S. Treasury bonds continued to surge, and U.S. Treasury yields fell sharply, especially at the short end, with the 2-year Treasury yield falling a staggering 29 basis points to below 4%.
U.S. stocks, which do not like the "hard landing" narrative, continued to fall, with the S&P 500 falling more than 2% and the Nasdaq 100 falling 3%, falling more than 10% from the highs reached last month, reaching the threshold for a market correction. The VIX fear index rose to 25 for the first time since March 2023.
The recent weakness in the stock market also comes on the heels of some disappointing quarterly earnings releases, including from Amazon and Intel (Intel shares plunged 26% on Friday, the biggest drop since at least 1982). In addition, other mega-cap stocks, including Alphabet and Tesla, also released disappointing reports earlier in the earnings season.
Earlier, Asia-Pacific stock markets were also slaughtered, with Japanese stocks falling the most. The Nikkei 225 index closed down 5.8%, and the Topix index closed down 6.14%, the biggest drop since 2016. European stock markets also opened lower across the board, with the Euro Stoxx 50 index and the German DAX 30 index both opening down more than 1%, and technology stocks leading the decline, with the Euro Stoxx Technology Index falling 6.6%, the biggest drop since 2020.
The foreign exchange market showed a situation of "when the dollar falls, everything grows". The US dollar index fell 1% on the day, now at 103.29. The US dollar fell below 147 yen for the first time since March 12, down 1.58% on the day. The euro stood above 1.09 against the US dollar, up more than 1% on the day. The pound stood above 1.28 against the US dollar. The offshore RMB rose 900 points against the US dollar on the day, regaining the 7.16 mark.
In terms of commodities, gold once surged by nearly 1% to $2,470, thanks to the weakening of the U.S. dollar, but then reversed its trend, giving up all the gains of the day and falling below $2,440. Spot silver also plunged during the session and turned down during the day.
Crude oil accelerated its decline due to the gloomy demand outlook and is expected to close in the red for the fourth consecutive week. Both U.S. and Brent crude oil fell 4%. The two major benchmark crude oils have fallen by about 10% in the past four weeks, setting a record for the longest weekly decline this year.
"While rising tensions in the Middle East could impact supply, weak economic growth in major economies could curb oil demand," said Ashley Kelty, an analyst at Panmure Liberum.
A string of surveys showing weak manufacturing activity in Asia, Europe and the United States raised the risk that the global economic recovery is faltering and weighing on oil consumption. Asian crude oil imports fell to their lowest level in two years in July, according to LSEG Oil Research.
Meanwhile, Thursday's OPEC+ meeting did not change the group's oil production policy, including gradually withdrawing from voluntary production cuts starting in October.
Oil investors are also watching developments in the Middle East conflict. The killings of senior leaders of Iran-backed militant groups Hamas and Hezbollah have raised concerns that an all-out war could be imminent in the region, threatening to disrupt crude supplies.
Article forwarded from: Jinshi Data
