European stocks continued to plummet on Friday in the midst of a global economic downturn, mainly triggered by weak U.S. economic data. The regional Stoxx 600 index took a hit, dropping 2.48% by 3:17 p.m. London time. This steep decline brought the index below the 500-point mark for the first time since April, as reported by LSEG data. Almost all major bourses and sectors were painted in red, with technology stocks experiencing a significant 6% decrease. This came as a result of U.S. tech giant Intel enduring a substantial loss of up to 28% in morning trading following disappointing earnings.
Central Bank Actions
The slump in global markets can be attributed to a series of central bank actions. The Bank of England decided to cut interest rates for the first time since 2020, while the U.S. Federal Reserve kept rates steady, and the Bank of Japan raised them during the week. These moves, coupled with unstable corporate earnings and data releases, provoked anxiety among investors. The Stoxx 600 witnessed its worst trading session since mid-June on Thursday, primarily influenced by financial sector decline. French bank Societe Generale revised its outlook, contributing to the downward trend, alongside the BOE’s rate reduction. Financial services took a beating once again on Friday, with banks falling by 4%.
The decision by the Bank of England to lower its key interest rate from 5.25% to 5% came after a tight 5-4 vote from policymakers. While the market was not entirely convinced of this move, BOE Governor Andrew Bailey emphasized the clarity in the direction of interest rates. However, he refrained from commenting on any further cuts, stating that services inflation and wage data would be closely monitored. Market predictions hint at a rate hold in September, followed by another rate trim in November.
U.S. Market Struggles
The U.S. stock markets experienced a significant decline on Thursday, reflecting growing concerns about the economy’s state. Disappointing figures like higher than expected weekly initial jobless claims, and slowing manufacturing data added to the turmoil. The latest nonfarm payrolls report from the U.S. Bureau of Labor Statistics revealed a slower-than-anticipated job growth in July, contributing to the increasing fear of an upcoming recession. Stock futures reacted swiftly to the news, anticipating a gloomy market outlook.
Asia-Pacific markets mirrored the turmoil on Friday, with Japan’s benchmark indexes nosediving up to 5%. Cedric Chehab, global head of country risk at BMI, pinpointed the U.S.-led sell-off as the catalyst for the market mayhem, which intensified during the week. Chehab highlighted factors such as the Bank of Japan’s hawkish stance disrupting the yen carry trade, weak U.S. data, and earnings volatility as the driving forces behind the market dip. He also reminded investors of the typical seasonal rise in equity market volatility between July and October, emphasizing the current circumstances as not entirely unexpected given the recent stock rally and high valuations.
The global economic landscape remains fraught with uncertainty, sparking market turbulence across continents. Investors must navigate through these rocky terrains with caution and vigilance, keeping a close eye on central bank policies, economic indicators, and corporate performances to make informed decisions.
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