Global stock markets plunge on US recession fears

 

•Nigeria stocks down 0.2% 

By Peter Egwuatu, with agency report 

Wall Street stocks deepened their losses Monday and Tokyo had its worst day in 13 years as panic spread across trading floors over fears of recession in the United States, just as the Nigerian stock market dipped by 0.2%.

Specifically, the benchmark index of the stock market, Nigerian Exchange Limited, NGX All Share Index, ASI  on Monday down to 97,582.41 points from 97,745.73 points it closed last week Friday.

In the same vein, another stock market gauge, NGX market capitalisation, which represents  total investment value of investors on the Exchange dropped by over N97 billion to close at N55.404 trillion from N55.497 trillion.

On activity metrics, the volume and value traded on the NGX surged by 53.63% and 57.36% to print to close at 324.02 million units and N6.27 billion, respectively. Zenith Bank  led the volume and value chart with 36.9 million units traded (11.42% of total volume traded) at a total value of N1.33 billion (21.41% of total value traded), respectively. The surge in trading activity in Zenith Bank could be attributed to a cross of 2.9 million unit at N36.00 earlier in the day.

Sectoral Performances

Sectorial performance was predominantly bullish as three out of five indices closed in positive terrain. The Consumer Goods  Index gained 0.89%  Banking Index 0.19% and Industrial Goods Index 0.03%, buoyed by upticks in Dangote Sugar, which garnered  5.88%, UBA 1.25% and NAHCO 5.41%. respectively. On the flip side, the Insurance  Index declined by 0.03% and Oil and Gas Index  0.01% due to selling pressure in VERITASKAP  that dropped 6.32% and Japaul GOLD 0.57% respectively.

Global markets

Meanwhile, on the global markets, New York’s tech-heavy Nasdaq Composite Index tumbled more than six percent of the start of trading, but pared its losses to stand down 2.8 percent in late morning trading.

The S&P 500 and the Dow were also down more than two percent.

Major European indices trimmed their losses to finish the day down around 1.5-2.0 percent.

Tokyo’s Nikkei tanked more than 12 percent in its worst day since the Fukushima crisis in 2011. It also suffered its biggest ever points loss, shedding 4,451.28.

Weak US jobs  report

The market meltdown was triggered by a weak US jobs report on Friday which showed the unemployment rate reached its highest since October 2021.

The report came two days after the US Federal Reserved decided, as expected, to keep interest rates at a 23-year high while signalling that it could cut them in September.

“Investors are gripped by fears that the Federal Reserve has waited too long to pivot on its policy, especially in light of Friday’s disappointing US jobs data and a slew of other weak economic indicators pointing toward a looming recession,” said market analyst Fawad Razaqzada at City Index and FOREX.com.

Friday’s much-anticipated report showed the US economy added just 114,000 jobs last month, well down from June and far fewer than expected, with unemployment at 4.3 percent.

The news came a day after lacklustre factory data.

Investors fear the Fed’s high rates, which aimed to slash inflation, could be plunging the economy towards a hard landing and recession instead of the soft landing sought by the central bank.

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.

But Chicago Federal Reserve President Austan Goolsbee said on CNBC that US jobs numbers are “not looking yet like recession” but said if conditions deteriorate “we’re going to fix it.”

Speculation that the Fed could cut more aggressively than expected from September, or even be forced into an emergency reduction this month, sent the dollar sliding against the yen.

The Japanese currency was boosted also by a Bank of Japan interest-rate hike last week, analysts said.

The dollar went under 142 yen for the first time since January.

Bitcoin, oil retreat 

Markets tumbled across the board Monday, with Brent North Sea crude reaching the lowest level in more than six months despite heightened Middle East tensions, while bitcoin slumped more than 10 percent to under $50,000.

“Aside from ongoing worries about a US recession, the continuation of the pressure on markets has been attributed to unwinding of the yen carry trade and geopolitical fears surrounding an expected Iranian military retaliation against Israel after Israel killed a high-ranking Iranian military official,” said Briefing.com analyst Patrick O’Hare.

Many investors have borrowed at low interest rates in a weak yen to invest in higher yielding assets in other currencies, but the abrupt surge in the yen is forcing many to unwind the trades.

O’Hare also noted big falls in tech and semiconductor shares.

That helped fuel sharp drops in Asia markets and US tech shares were also pulling down Wall Street indices.

Shares in AI chip manufacturer Nvidia plunged 14.6 percent at the start of trading, but later clawed back more than half of those losses.

Shares in Facebook and Instagram parent company Meta, Microsoft and Google parent company Alphabet shares were also down.

Trump blames Harris for market shockwaves

According to BBC, Donald Trump, who has been struggling to find a clear line of attack against Vice-President Kamala Harris, has quickly latched onto the recent global stock market sell-off.

“ In a series of posts on his social media site, he blamed Harris and the Democrats for the downturn and said stockholders were rejecting her candidacy.

“Voters have a choice,” he wrote, “Trump prosperity or the Kamala crash & great depression of 2024.”

Public opinion polls have shown that voters trust the former president more on economic issues than they do Democrats. While the stock market indexes are still well above where they were when Trump left the White House, if the past few days of poor economic news represent a trend over the next three months, it could give Trump a potent electoral issue.

Democrats will be quick to note the economic turmoil that took place during the last year of Trump’s presidency, with its Covid-related unemployment surge and stock market collapse that dwarf the recent dip.

America voters tend to focus on the future, however. And if a stumbling economy becomes the top issue as they head to the polls in November, it will be difficult for Harris to shift their attention to areas – like abortion and the environment – where she is more popular than the former president” BBC stated. 

Central bank will ‘fix it’ if economic conditions deteriorate -—Chicago Fed President

Meanwhile, according to BBC, Chicago Federal Reserve President Austan Goolsbee has downplayed US recession fears but says Federal Reserve officials need to monitor changes in the environment to avoid being too restrictive with interest rates.

“You only want to be that restrictive if you think there’s fear of overheating… these data, to me, do not look like overheating,” Goolsbee tells CNBC news.

He says the central bank’s job is not to react to one month of weaker labour data.

Goolsbee adds that if economic conditions deteriorate, the central bank will “fix it”.

“The Fed’s job is very straightforward: maximise employment, stabilise prices and maintain financial stability. That’s what we’re going to do.”

Unlikely to see emergency interest rate cut — Economist

Economist Steven Blitz says he doesn’t think there will be an emergency rate cut. But could there be a bigger rate cut in September?

“If there’s another sub 100,000 job number in August, and weak retail sales in July and August, then yes,” he says.

“If they (the Federal Reserve) want to take their time cutting (interest rates), that’s their business. The cost of that will be a much more rapid acceleration in cutting later on when we’re already in recession.”

He says this is all about avoiding a recession.

Will there be an interest rate cut in September?

The US Federal Reserve voted last week not to cut interest rates. Other central banks within developed economies, including the Bank of England and the European Central Bank, have recently cut interest rates.

The Fed held borrowing costs but its chair, Jerome Powell, signalled that a cut in September was on the table. However, this led to speculation that the Fed had waited too long to act. A cut in interest rates means it is cheaper to borrow money which should, in theory, act as a boost to the economy. If the jobs figures suggest that the economy is already tipping downwards, then the fear is the Fed is too late.Last week, the chip-making giant Intel announced it was cutting 15,000 jobs and market rumours suggested that rival Nvidia may have to delay the release of its new AI chip.

What followed was a bloodbath on the Nasdaq, the technology-heavy US index. After hitting a high only a few weeks ago, it plunged by 10% on Friday.

That helped pump-up the fear factor across markets and that’s where danger could lie. If stock market panic continues and shares keep plunging the Fed could potentially step in before its next meeting in September and cut interest rates.