Fears of US recession send stock markets tumbling

Concerns have been raised after the world’s largest economy reported much lower-than-expected job creation in July.

Stock markets around the world have dropped sharply amid fears the US economy may be heading for a recession.

The UK’s FTSE 100 fell throughout the day and closed down more than 2% on Monday afternoon, the worst day since July 2023. The FTSE 250 also dropped on the open and had fallen 2.83% by the end of the trading day.

Other exchanges in Europe, including in France, Germany, Portugal, and Spain, also dropped between 2% and 4% on Monday.

What happened in the US?

As was expected, all the major US stock market indexes fell on the open at 2.30pm UK time.

The Nasdaq Composite - the index heavily made up of tech companies - fell 2.78% as the trading day wore on.

The US index containing companies relied on to be stable and profitable, the S&P 500, was down 2.34%.

Similarly, the index of 30 major companies listed on US stock exchanges, the Dow Jones Industrial Average (DJIA), lost 2.22%.

The falls have come from all-time highs, however. The Nasdaq and Dow Jones tumbles follow new records set in July. The S&P is coming off a February record.

Behind the drop are seven high-performing tech companies, the so-called magnificent seven: Apple, Google parent company Alphabet, Amazon, Meta, Microsoft, AI-microchip maker Nvidia and electric car producer Tesla.

Sell-offs were not confined just to stock markets. Cryptocurrency Bitcoin reached a level not seen since February. One Bitcoin is now worth $54,650.

A bright spot

There was a bright spot for motorists in the oil price, which fell to $76.62 for a barrel of the benchmark Brent crude oil. Not since January have prices fallen to such a level.

Asia

It follows much steeper drops in Asia earlier in the day.

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.

South Korea’s Kospi index dropped more than 9%, while Taiwan’s Taiex exchange slipped by 8.4%.

Markets in Singapore, Indonesia, Thailand, and the Philippines also fell by around 2% and 3%.

The declines prompted the triggering of circuit breakers - in which the trading of stocks and derivatives is halted for 20 minutes - by some exchanges during the day.

It comes after US jobs market data on Friday came in much lower than expected for July, sending the country’s stock markets tumbling.

Some 114,000 jobs were created during the month - significantly lower than the 175,000 new roles forecast by Wall Street.

The figure was the weakest since December last year and the second weakest since the start of the COVID pandemic in the West in March 2020.

Robert Carnell, from financial services firm ING, said: "What we are looking at now is a situation where the market is viewing what’s going on in the US macro economy as ticking the recession box."

It also comes after the US Federal Reserve decided on Wednesday not to cut interest rates from the 5.25% to 5.5% range which they have been held at since July last year. Markets expect the central bank to make a cut in September.

Economists at Goldman Sachs said they believed there was now a 25% chance of a recession in the US, up from their previous estimate of 15%.

Analysts at JPMorgan were more pessimistic, putting the probability of a recession at 50%.

Concerns globally have also been heightened by worries over the strength of China’s economy and several weak earnings reports from major technology firms last week, as investors grow jittery over potential returns from investment in AI.

Share prices have also been falling in Japan since Wednesday after its central bank raised its benchmark interest rate to around 0.25% from a range of zero to about 0.1%.

Danni Hewson, from investment platform AJ Bell, said: "Friday’s [US] jobs figures dropped like a bucket of cold water on markets already chilled by mixed earnings updates and concern about levels of spending by big tech companies on AI plans.

"London markets haven’t escaped the Monday meltdown with just a handful of companies on the FTSE 100 opening on the front foot and a smorgasbord of sectors losing ground, including miners and oil giants."

Disorder impact

Ms Hewson also said that riots in the UK in recent days were also "likely to impact consumer confidence and footfall levels, which are crucial to retailers and hospitality venues".

She added: "Then there’s the potential insurance claims stemming from the damage inflicted by flying bricks and Molotov cocktails.

"For a UK economy struggling to find growth this chapter, particularly at this time, is a massively unwelcome one."

Derren Nathan, head of equity research at Hargreaves Lansdown, said: "The FTSE 100 has opened down as the US sneeze risks becoming a cold.

"Exporters bore the brunt of the sell-off as contagion from last week’s poor employment and manufacturing data in the States put recessionary fears back on the table.

"The discussion around September’s rate decision at the Federal Reserve Bank has moved from if to how much, with the odds now moving in favour of a half-point cut."

Fears over a possible US recession - coupled with ongoing concerns over tensions in the Middle East - have also prompted falls in the price of oil.

A barrel of the benchmark Brent crude has slipped by more than 1.2% to just under $76 (£60) on Monday morning.

Sophia Martinez