LONDON (Reuters) – Global stocks dropped sharply on Friday with richly-valued tech firms taking much of the pain, as a U.S. jobs report flagging unexpected economic weakness struck fear in markets already rattled by downbeat earnings updates from Amazon (NASDAQ:AMZN) and Intel (NASDAQ:INTC).
With thin summer trading likely exaggerating moves, a slump that began in Asia with a 5.8% drop for Japan’s Nikkei, its biggest daily fall since March 2020 during the COVID-19 crisis, rippled through Europe and headed for Wall Street.
MSCI’s global stock gauge dropped 0.8%, European shares fell 2%, the VIX stock market volatility measure, dubbed Wall Street’s fear gauge, hit its highest since April and money poured into government bonds.
Friday’s sell-down followed a softer-than-expected U.S. factory activity survey and the monthly U.S. non-farm payrolls report, which showed job growth slumped to 114,000 new hires in July from 179,000 in June.
Futures trading implied the U.S. S&P 500 share index would soon open 1.8% lower and the tech-heavy Nasdaq 100 would fall to at least 10% below its recent peak, the accepted definition of a stock market correction.
The U.S. Federal Reserve has kept benchmark borrowing costs at a 23-year high of 5.25%-5.50% for a year, and some analysts believe the world’s most influential central bank may have kept monetary policy tight for too long, risking a recession.
“The historical experience is that turnarounds in the labour market can occur quickly and brutally and that relatively moderate increases in unemployment have been enough to trigger recessions in the United States,” SEB US economist Elisabet Kopelman said.
TRIMMING BIG TECH POSITIONS
Money markets on Friday rushed to price a 70% chance of the Fed, which was already widely expected to cut rates from September, implementing a jumbo 50 basis points cut next month to insure against a downturn.
“That does feel like we have jumped the gun,” Fidelity International fixed income manager Shamil Gohil said.
He added, however, that “we will also be watching for a rise in the unemployment rate which will give us clues about a weaker labour market and as a potential recessionary signal.”
Shares in U.S. chipmaker Intel tumbled more than 20% in pre-market trading on Friday after the group suspended its dividend and announced hefty job cuts alongside underwhelming earnings forecasts.
Artificial intelligence chipmaker Nvidia (NASDAQ:NVDA), one of the biggest contributors to the tech rally, dropped 4.1% pre-market and European tech stocks swooned 4.6% lower.
Nvidia, up more than 700% since January 2023, has left many asset managers with an outsized exposure to the fortunes of this single stock.
Steven Bell, chief economist for EMEA at asset manager Columbia Threadneedle, said that, while investors were trimming big tech positions to rebalance their portfolios, the U.S. economy was not about to contract.
“Personally, I’m not thinking I should run for the hills,” he said. “This is a slowdown, not a recession. And the background of lower interest rates, lower inflation and real wages rising because inflation is falling faster than wage growth, all of that’s quite positive.”
BUYING SAFE HAVENS
Safe-haven buying went full throttle on Friday, however, with government debt, gold and currencies traditionally viewed as likely to hold value during market chaos all rallying.
The 10-year Treasury yield collapsed by 16 bps to 3.796%, putting the benchmark debt security on track for its best weekly rally since March 2020. Bond yields fall as prices of the securities rise.
The two-year yield, which typically reflects near-term interest rate expectations, dropped by a stunning 25 basis points to 3.9208%.
The 10-year German bund yield, a benchmark for euro zone debt costs, hit its lowest since March 2023, at 2.201%.
In foreign exchange markets, the yen added 0.2% to 149.04 per dollar to extend a rapid bounce back for the weakened currency, given some relief this week by the Bank of Japan raising interest rates to levels unseen in 15 years.
Switzerland’s franc touched its highest since early February, at 0.08698 per dollar, before settling back slightly to 0.871.
Sterling was on track for a 1% weekly drop against the dollar as traders speculated that the Bank of England would follow its first rate cut of this cycle on Thursday with another in November.
Commodity markets broadly displayed global growth fears as gold added 1.3% to $2,473 an ounce and Brent crude oil dropped 1.4% $78.11 a barrel, headed for a fourth successive weekly loss.
Source: Economy - investing.com
