2024-08-02 09:45:57
Markets plunge after weak U.S. jobs data
Weak economic indicators, Japan’s interest rate policy and escalating tensions in the Middle East are leading to a massive sell-off among investors.
A stronger yen has dampened profit expectations: Japanese passers-by photographed last week in front of a currency exchange rate screen.
Photo: Kimimasa Mayama (EPA/Keystone)
A toxic mix of different ingredients caused the stock market to plummet on Thursday and Friday. The final negative factor was the disappointing US labor market data released on Friday afternoon CET.
On the other hand, chipmaker Intel had its day on Thursday, reporting poor numbers and announcing 17,500 layoffs worldwideHowever, this did not convince investors that things would improve again quickly enough. The company lost a fifth of its market value in a single day.
The Nasdaq, a U.S. tech-heavy index, fell 2.4% on Thursday after online department store Amazon also released a sales forecast that fell short of market watchers’ expectations.
The developments at both companies heightened investor concerns that the overall U.S. economy is not as healthy as the past few months have led some to believe. Many are wondering if the Fed’s mistake on Wednesday was a mistake. Maintain the key interest rate in the range of 5.25% to 5.5% hat.
Concerns about escalating conflict in the Middle East also weighed on prices. The tensions have led to higher oil prices. This has made investors cautious.
Investors are even talking about a possible recession in the U.S. The fact is that the latest economic data has been weaker than expected: the unemployment rate rose to a nearly one-year high and manufacturing activity fell sharply. Still, big bank UBS wrote in a note on Friday about the stock market crash that it believes recession fears are “premature at this point.”
As a result, Japan’s leading index, the Nikkei, fell significantly more than the US stock index, i.e. 5.8%. One of the reasons is also concerns about the technology sector, but a bigger reason is the local currency and interest rate policy. In recent weeks, the yen has strengthened significantly against the dollar. The momentum was boosted again by the Bank of Japan’s interest rate hike at the beginning of this week. Investors expect the next rate hike to take place in October. This puts pressure on Japan’s export prospects and profit expectations of many companies.
These imported issues also contributed to the fall in European prices on Friday. As of shortly before 3 p.m., the Swiss leading index SMI fell 3%, while the German DAX fell 2.2%, having already fallen 2.3% the day before. On the other hand, the UK’s FTSE 100 fell only 0.5%, partly because the Bank of England cut interest rates on Thursday, which should stimulate economic growth.
Prices fell further in the early afternoon after the U.S. government released disappointing labor market data: the U.S. economy created a lower-than-expected number of new jobs last month, at 114,000. The unemployment rate rose to 4.3%.
Against this backdrop, almost all observers in the U.S. now believe the central bank will cut rates at its next opportunity in September. The only question now seems to be how strong it will be – and whether it will be too late.
The Guardian quoted Matt Britzman, an analyst at investment platform Hargreaves Lansdown, as saying, “Many people are worried that the scenario of a soft landing of the economy after the interest rate hike that many people believe in is just a daydream.” “If the Fed does not cut interest rates, it may not be able to prevent the economic slowdown early on Wednesday.”
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