Aug 5 (Reuters) – Global stock markets fell sharply on Monday while bonds saw a rally as fears of a potential U.S. recession intensified. Investors fled from risk assets, betting that rapid interest rate cuts might be necessary to support economic growth.
Thank you for reading this post, don't forget to subscribe!Japan’s Nikkei plunged 12%, hitting nine-month lows and marking its largest single-day drop since October 1987. In Europe, the STOXX 600 index dropped 3%, and the S&P 500 fell 2.7% shortly after opening, approaching correction territory if it closes 10% below recent highs. U.S. Treasury yields fell sharply but later stabilized after strong ISM service sector data. The 2-year/10-year yield curve briefly inverted and was last at -11 basis points.
Quotes:
• Neville Javeri, Head of Empiric LT Equity, Allspring: “The sell-off began with last week’s jobs data, heightening expectations that the Fed needs to act more aggressively. This anxiety continued into the weekend and into today’s market actions.”
• Tim Courtney, Chief Investment Officer, Exencial Wealth Advisors: “The current market turmoil resembles the situation in late 2019 when the yield curve inversion led to significant volatility. While the economy shows signs of weakening, this reaction may be more about investor expectations and the Fed’s future actions.”
• Eric Wallerstein, Chief Markets Strategist, Yarden Research: “The sell-off is driven by multiple factors, including the yen’s rapid movement and geopolitical tensions. Despite the yield curve’s current inversion, we don’t necessarily expect an imminent recession.”
• Will Rhind, CEO, Graniteshares: “Global markets are reacting to the Bank of Japan’s rate hike and rising calls for a Fed rate cut. Volatility has surged, reminiscent of the 2020 COVID crash. This volatility might present buying opportunities, especially in high-quality tech stocks.”
• Quincy Crosby, Chief Global Strategist, LPL Financial: “The sell-off reflects a broader market reaction to weakening economic signals and recent corporate news. With the Fed’s next meeting far off, investors are concerned about ongoing market weakness.”
• John Lynch, Chief Investment Officer, Comerica Wealth Management: “The market’s recent shift in sentiment suggests increased volatility ahead. Despite recent GDP surprises and record equity levels, the narrative has turned towards concerns about the Fed’s actions and economic slowing.”
• Jim Caron, CIO, Cross-Asset Solutions at Morgan Stanley: “The current market conditions suggest the Fed could justify a 50 basis point cut if economic data continues to weaken. However, we don’t see a full-blown recession unfolding just yet.”
• Jamie Cox, Managing Partner, Harris Financial Group: “The sharp currency movements and market volatility are indicative of broader market nervousness. These conditions might offer opportunities for strategic buying.”
• Samy Chaar, Chief Economist, Lombard Odier: “Economic conditions remain acceptable despite recent data, and market movements seem exaggerated. There could be further volatility, but current pricing might be too extreme.”
• Mohit Kumar, Chief Economist for Europe, Jefferies: “Recent market corrections seem to be a reaction to excessive positioning rather than a signal of an impending downturn. The weakening employment picture is concerning, but not catastrophic.”
• Jim Reid, Global Head of Macro Research and Thematic Strategy, Deutsche Bank: “The market’s reaction to weak payroll data appears overblown. It’s possible that subsequent data will mitigate the current panic.”
• Ben Bennett, Head of Investment Strategy for Asia, LGIM: “Recent market movements reflect an unwinding of trades rather than fundamental changes. The volatility is likely driven by traders adjusting positions.”
• Richard Kaye, Portfolio Manager, Comgest: “The yen’s rise has affected markets, particularly Japanese equities. The sell-off reflects a broader unwinding of previous trade strategies.”
• Kyle Rodda, Senior Financial Market Analyst, Capital.com: “The market is experiencing significant volatility due to the yen’s movements and a mass deleveraging by investors. The swift nature of the sell-off is catching many off guard.”
• Daniel Tan, Portfolio Manager, Grasshopper Asset Management: “We expect a modest number of Fed rate cuts by year-end. The current equity sell-off might continue, but could present opportunities in emerging market bonds.”
• George Boubouras, Head of Research, K2 Asset Management: “The recent economic data may be causing unnecessary alarm. Volatility is expected, but the extent of the market’s reaction seems exaggerated.”
• Ryota Abe, Economist, SMBC: “Tensions and weaker-than-expected U.S. data are likely to weigh on Asian markets. The yen’s rise could also impact Japanese corporate margins.”
• Masafumi Yamamoto, Chief Currency Strategist, Mizuho Securities: “The market’s expectation of a significant Fed rate cut may be too optimistic. Current U.S. economic conditions do not justify such a drastic move.”
• Charu Chanana, Market Strategist, Saxo Markets: “U.S. economic data continues to drive market sentiment, but expectations for multiple Fed rate cuts may be excessive. The market’s current reaction reflects overstretched positioning.”
