European markets took a nosedive on Friday, extending their losses as weak U.S. economic data fueled recession fears.
The Stoxx 600 index plunged 2.82%, marking its worst day since December 2022, and dipped below the 500-point mark for the first time since April.
The broad-based sell-off saw all major bourses and almost every sector ended the day in the red, with tech stocks suffering a nearly 6% drop.
Intel led the decline, plummeting 28% in morning trading after a disappointing earnings report.
Financial services weren’t spared, tumbling 5.22%, while banks slid 4.35%.
The market turmoil was exacerbated by a series of central bank moves: the Bank of England cut interest rates for the first time since 2020, the U.S. Federal Reserve held rates steady, and the Bank of Japan hiked rates.
This, coupled with shaky business earnings and mixed economic data, spooked investors.
The BOE’s decision saw its key rate drop from 5.25% to 5% following a tight 5-4 vote. Governor Andrew Bailey hinted at further rate cuts, emphasizing the need to monitor service inflation and wage data closely.
Market expectations are now set for a rate hold in September and a potential cut in November.
Across the Atlantic, U.S. markets also took a hit as recession concerns mounted.
The latest nonfarm payrolls report showed slower-than-expected job growth in July and an unexpected rise in the unemployment rate.
This followed higher-than-anticipated weekly jobless claims and sluggish manufacturing data.
Asia-Pacific markets mirrored the global downturn, with Japan’s benchmark indexes dropping as much as 5%.
Cedric Chehab, global head of country risk at BMI, noted that the sell-off began a week and a half ago, driven by the Bank of Japan’s hawkish stance disrupting the yen carry trade, weak U.S. data, and earnings volatility.
Chehab pointed out, “Between July and October, there’s usually a seasonal rise in volatility for equity markets, so this isn’t completely unexpected.
After a large rally in U.S. and global stocks, mixed earnings, high valuations, and tight monetary policy, some turbulence was inevitable.”
The market’s current state underscores the fragility of the global economic recovery and the challenges ahead as central banks navigate the complex terrain of inflation, growth, and monetary policy.
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