Global stock markets are affected by fears of a US recession after the collapse of Tokyo

The stock markets are having a dark day on Monday due to fears of a recession in the United States. The European indices have been affected by the Tokyo Stock Exchange, which in today’s session has plummeted by 12.4%, the second biggest drop in its history, and have responded with significant declines in Madrid (-2.4%), Frankfurt (-2.3%), Paris (-1.77%), London (-2.17%). These declines are added to those registered last week.

The opening in the US only confirmed the bloodbath. The Nasdaq technology index sank 4% after the opening bell, slipped 5.5% and was 15% below last month’s record. The Dow Jones and the SP&500 lost 3% immediately after the opening bell. The Dow Jones closed with a drop of 2.6%, being the worst day for Wall Street since 2022. The Russell 2000 index, of medium and small listed companies and which had been gaining in recent weeks, lost 5%.

The crisis scenario is leading to a wave of sales. The US labour market saw a slowdown last week, after unemployment had already surpassed the 4% barrier in June, standing at 4.1%. The slowdown was greater than expected in July, with only 114,000 new employees added, when analysts were expecting 175,000 jobs. Unemployment thus rose to 4.3%. The consequence is that analysts expect the Federal Reserve (Fed) to speed up its plan to cut interest rates in order to try to avoid further problems in the economy.

Japan’s rate hike amplifies the effect of fears of a US recession that have been brewing since last week

The poor US employment data is not the only reason for this change in the market trend. “Companies have presented their half-year results in the last 15 days and, although they may be good, there is a general idea that the second half of the year will be worse,” explains Xavier Brun, analyst at Trea AM. The reason is that many companies have already recovered their inventory after the supply crisis, so the forecast is for a slowdown in orders. In addition, the Chinese economy is not developing as expected either.

Brun points out that although technology companies have kept the market up in the United States in recent months, the situation of the rest of the stocks in the SP&500 was not as comfortable. “The performance of the Magnificent Seven – referring to Nvidia, Alphabet, Microsoft, Apple, Meta, Amazon and Tesla – explains 75% of the performance of the entire index,” he says. This Monday, the Magnificent lost between 3% and 6%. Something similar is happening with the European stock markets, where microchip giants such as ASML or ASMI or the pharmaceutical company Novo Nordisk have masked a much more contained general evolution.

Stockbrokers watch sharp falls in Japanese markets and the swing between the dollar and the yen

Tomorrow Mormon / EFE

In the case of the Tokyo Stock Exchange, this complex macroeconomic scenario has been amplified by the change in monetary policy. The rise in interest rates by the Central Bank of Japan (CBJ) has led to a reduction in future expectations in one of the most indebted economies in the world. In addition, it also means a strong appreciation of the yen against the euro and the dollar, a trend that harms the major Japanese exporters by repatriating their profits abroad.

“Stock market values ​​are determined by various factors such as the economic situation and business activities, so we avoid commenting on daily movements,” Japanese government spokesman Yoshimasa Hayashi said at a press conference today. Hayashi said, however, that the Japanese government will monitor these movements and “make an effort to manage the Japanese economy and finances.”

Central bank decision strengthens yen, hurts Japanese exporters

In addition to Japan, other Asian stock markets also suffered sharp declines. Seoul lost 8.77% at the close on Monday. In Taiwan, the Taipei Stock Exchange’s main benchmark index, the Taiex, closed down 8.35%, marking the biggest drop in a single session in its history. The island’s technology companies, dragged down by their American counterparts, were the hardest hit: shares of TSMC, the world’s largest chip manufacturer, lost 9.75% at the close of the session, as did Hon Hai (Foxconn), the assembler of many Apple products, whose shares fell by 9.92%.

To a lesser extent, the Hong Kong, Shanghai and Shenzhen stock exchanges also experienced red numbers, but more moderately, around -1.5%.