Japan’s benchmark Nikkei average ended 12.40% lower at 31,458.42, its largest one-day decline since October 1987, while the broader Topix dropped 12.48% to 2,220.91
Stock markets declined on Monday, with Japanese shares at one point surpassing their 1987 “Black Monday” loss, as concerns of a U.S. recession sent investors fleeing from risk while betting that rate cuts would be needed to rescue growth.
The safe haven yen and Swiss franc soared, as crowded carry trades unravelled, triggering speculation that some investors were unloading profitable trades to get money to cover losses elsewhere. Such was the scale of selling that circuit breakers were triggered on stock exchanges across Asia.
Japan’s benchmark Nikkei average ended 12.40% lower at 31,458.42, its largest one-day decline since October 1987, while the broader Topix dropped 12.48% to 2,220.91.
European stocks opened 1.8% lower with France’s CAC 40 down 2.1%, Spain’s IBEX 2.8% lower and the UK’s FTSE 100 down 1.7% on concerns of a global recession after weak U.S. data.
Treasury bonds were in demand, with U.S. 10-year yields reaching 3.723%, the lowest since mid-2023 after rising back to 3.737.
A worryingly weak July payrolls report on Friday saw markets price in a 78% probability the Fed will not only reduce rates in September, but ease by a full 50 bps. Futures imply 122 bps of cuts in the 5.25-5.5% funds rate this year, and rates of nearly 3.0% by the end of 2025.
Analysts at JPMorgan were even more bearish, assigning a 50% chance to a U.S. recession.
Now that the Fed looks to be materially behind the curve, we expect a 50 bp cut at the September meeting, followed by another 50 bp cut in November, according to economist Michael Feroli.
Indeed, a case could be made for an inter-meeting easing, especially if the data soften further — although Fed officials might worry about how such a move could be misinterpreted, Feroli added.
