Stock markets plunge on US recession fears

Wall Street stocks deepened their losses Monday, and Tokyo had its worst day in 13 years as panic spread across trading floors over fears of recession in the United States.

Wall Street's tech-heavy Nasdaq Composite index tumbled 6.3 percent at the open, with the S&P 500 falling 4.2 percent and the Dow dropping 2.7 percent.

Major European indices were down around three percent in afternoon trading.

Tokyo's Nikkei sank more than 12 percent on its worst day since the 2011 Fukushima crisis. It also suffered its biggest-ever points loss, shedding 4,451.28.

A weak US jobs report on Friday triggered the market meltdown. The report showed that the unemployment rate reached its highest since October 2021.

The report came two days after the US Federal Reserve decided, as expected, to keep interest rates at a 23-year high while signalling that it could cut them in September.

"Investors are gripped by fears that the Federal Reserve has waited too long to pivot on its policy, especially in light of Friday's disappointing US jobs data and a slew of other weak economic indicators pointing toward a looming recession," said market analyst Fawad Razaqzada at City Index and FOREX.com.

Friday's much-anticipated report showed the US economy added just 114,000 jobs last month, well down from June and far fewer than expected, and unemployment at 4.3 percent.

The news came a day after lacklustre factory data.

Investors fear the Fed's high rates, which aimed to slash inflation, could be plunging the economy towards a hard landing and recession instead of the soft landing sought by the central bank.

Expectations that the Fed could cut more aggressively than expected starting in September or even be forced into an emergency reduction this month sent the dollar sliding against the yen.

The Japanese currency was boosted also by a Bank of Japan interest-rate hike last week, analysts said.

The dollar went under 142 yen for the first time since January.

Bitcoin, oil retreat

Markets tumbled on Monday, with Brent North Sea crude reaching its lowest level in over six months despite heightened Middle East tensions. Bitcoin slumped more than 10 percent to under $50,000.

"Aside from ongoing worries about a US recession, the continuation of the pressure on markets has been attributed to the unwinding of the yen carry trade and geopolitical fears surrounding an expected Iranian military retaliation against Israel after Israel killed a high-ranking Iranian military official," said Briefing.com analyst Patrick O'Hare.

Many investors have borrowed at low interest rates in a weak yen to invest in higher-yielding currencies, but the abrupt surge in the yen and interest rate moves are upending the trade.

Some analysts pointed to the "Sahm rule", which says an economy is in the early stages of recession if the three-month moving average of unemployment is 0.5 percentage points above its low over the previous 12 months. That was triggered by Friday's data.

O'Hare also noted big falls in tech and semiconductor shares.

That helped fuel sharp drops in Asia markets, and US tech shares also pulled down Wall Street indices.

Shares in AI chip manufacturer Nvidia plunged 14.6 percent at the start of trading on Monday.

Shares in Facebook and Instagram parent company Meta, slumped 7.2 percent.

Microsoft and Google's parent company, Alphabet's shares, were down around five percent. 

Commodities under pressure

Commodities, including oil, natural gas, metals and agricultural products, also joined the global sell-off in equities.

Commodities had already taken a hit in recent weeks, weighed down by a sluggish economy in top buyer China, with crude oil down around 5% last week, copper hitting a four-month low on the London Metal Exchange, and corn near its weakest since 2020.

Crude oil dropped around 1 percent on Monday in volatile trade, less than losses on major equity indexes as US recession fears and possible implications for oil demand were somewhat mitigated by price support from rising tensions in the Middle East.

Copper prices tumbled over 3 percent to 4-1/2 month lows as a deteriorating demand outlook in China and the United States, the world's two largest economies, triggered a sell-off of the metal used in power and construction.

Gold was last down around 2 percent.

European gas, power, and carbon contracts also fell.

European benchmark gas for the month ahead sank around 4% from the previous session, under pressure from panic selling in line with the wider sell-off as well as other factors, according to one trader.