Fears of US recession sees stock markets fall

Stock markets around the world have experienced sizeable falls due to fears that the US may be heading for a recession,.

The FTSE 100 is down 3.05%, while the FTSE 250 has seen its biggest drop since Liz Truss’ mini-budget in September 2022 (4.07%).

Elsewhere, the US S&P 500 is down 2.85%, the French CAC 40 has fallen 1.88% and the German DAX is down 2.33%.

Moneyfarm chief investment officer Richard Flax said doubts regarding the US economy arose due to “weak jobs and economic data, paired with disappointing tech sector earnings”.

This has resulted in some investors questioning the US Federal Reserve opinion not to reduce interest rates last week.

Both the Bank of England (BoE) and the European Central Bank (ECB) announced cuts to its interest rates.

Additionally, official employment data showed that US employers added 114,000 jobs in July, “significantly fewer than expected”, while the unemployment rate increased.

Japan’s Nikkei 225 share index was down more than 12% at the close on Monday, its biggest fall since “Black Monday” in October 1987.

The Bank of Japan (BOJ) decision to raise interest rates by 0.15% resulted in crashing the yen carry trade.

GraniteShares founder and CEO Will Rhind said: “The BOJ decision accelerated the appreciation of the yen against the US dollar and other currencies wiping out trillions in levered investments.”

The negative sentiment spread to Asia as South Korea’s Kospi fell by 9%, share indices in Australia, Hong Kong, and China also experienced significant drops.

Flax added: “Berkshire Hathaway’s sale of $50bn worth of Apple shares is also seen as a bearish signal, exacerbating market anxiety.”

Goldman Sachs now believe there is a 25% chance of a recession in the US, up from its previous estimate of 15%.

JPMorgan put the probability of a recession in the US at 50%.

Quilter Investors investment strategist Lindsay James added: “There is a clear slowing in the US economy as we move into the second half of the year, indicated by the raft of companies reporting weaker consumer trends particularly in lower income groups, as high interest rates continue to act as a headwind.”

Still James feels this falls short of a recession, as “the GDPNow indicator published by the Atlanta Fed forecasting 2.5% growth in the third quarter, as a seasonally adjusted annual rate.”

Regardless, “recent data has done little to calm investors nerves”, James added.