Global stocks sell-off deepens as US unemployment hits three year high
The global sell-off in stock markets deepened as US unemployment hit a three-year high amid growing fears that the US Federal Reserve has left it too late to begin cutting interest rates.
Nonfarm payrolls grew by 114,000 in July, which was down from a downwardly revised 179,000 last month and much lower than the 175,000 expected by analysts.
The unemployment rate also rose to 4.3pc from 4.1pc, its highest level since October 2021.
The pan-European Stoxx 600 index fell as much as 2.3pc to a three-month low, while Germany’s Dax also dropped as much as 2.3pc. The Cac 40 in France dipped as sharply as 1.4pc. The FTSE 100 fell as much as 0.8pc.
Japan’s Nikkei 225 index had already closed down by 2,216.63 points – its second-largest points drop in history – after weaker-than-expected US factory data showed output dropped to an eight-month low in July, while weekly initial jobless benefit claims by Americans rose to the highest level in nearly a year.
Federal Reserve chairman Jerome Powell indicated on Wednesday that a first interest rate cut could come in September as policymakers held interest rates at 23-year highs of 5.25pc to 5.5pc.
However, markets around the world dropped sharply overnight and this morning as traders priced in that the Fed will be forced to cut interest rates at all three of its remaining meetings this year.
Traders have bet there is a 50pc chance that the Fed will use one of those meetings to cut borrowing costs by half a percentage point, and have forecast that policymakers will make 1.75 percentage points of interest rate cuts over the next 12 months in a race to avoid a recession.
The sell-off was exacerbated by poor results from Big Tech giants on Wall Street as results from Apple, Intel and Amazon failed to impress.
Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management, said: “I didn’t expect stocks to fall this much.
“This is probably because there are concerns that the US economy will collapse in a big way, which is the most unpleasant pattern for Japanese stocks.”
José Torres, a senior economist at Interactive Brokers, said: “The short-lived satisfaction of Fed chief Powell communicating decent odds of a September rate cut has turned sour as investors are now panicking that the central bank isn’t trimming soon enough.”