European and US equity markets appeared ready for a slight rebound on Monday following a recent selloff spurred by disappointing US jobs data, which also pushed Asia’s major stock index to a three-week low. Futures for the Standard & Poor’s 500 Index and the Euro Stoxx 50 Index both showed gains after the respective indices fell on Friday in response to weaker-than-expected US payroll figures. These numbers have left economists and traders uncertain about the Federal Reserve’s future rate-cutting strategy.
Asian markets mirrored Friday’s global declines, with stock indices from Taiwan to Australia experiencing declines due to concerns over slowing global growth. Japan’s Nikkei 225 Stock Average fell for the fifth consecutive day, and iron ore prices dipped below $90 per ton for the first time since 2022.
Despite an anticipated Federal Reserve rate cut in September, the key question remains the magnitude and number of subsequent reductions, according to Louis Kuijs, Asia-Pacific chief economist at S&P Global. “There are numerous risks facing the global economy,” Kuijs noted in an interview with Bloomberg Television, emphasizing the Fed’s consideration of these risks.
Although a September rate reduction is widely expected, investors are closely analyzing economic indicators to gauge the extent and speed of future cuts. Compounding these uncertainties is a downturn in the technology sector.
The MSCI Asia Pacific Index fell by as much as 1.8% on Monday, with significant losses in major chipmakers such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Japan’s Nikkei 225 Stock Average fell over 3% before slightly recovering. Taiwan’s main stock index dropped by 2%, and Hong Kong’s benchmarks were on track for a fifth consecutive day of losses.
September has proven to be a turbulent month for markets, with both equities and commodities declining amid fears of diminishing global growth. The Cboe Volatility Index, Wall Street’s measure of market anxiety, closed at its highest level in a month on Friday following the underwhelming US nonfarm payrolls report.
Safe-haven assets like Treasuries and the yen saw some retreat from their previous gains. The US two-year Treasury yield increased by four basis points to 3.69%, recovering from a ten-basis-point drop on Friday. The yen fell 0.5% to 142.99 per dollar, after having strengthened 0.8% the day before.
China’s CSI 300 Index dropped by as much as 1.2%, extending its decline from May’s peak to over 13%. A further drop could push the benchmark to levels not seen since early 2019, indicating that years of policy efforts to stimulate the economy and support share prices have yet to yield significant results.
Former People’s Bank of China Governor Yi Gang acknowledged that addressing deflation should be a priority, marking a rare public admission of the threat posed by falling prices to China’s economic growth.
Iron ore prices fell below $90 per ton due to weakening demand from China, its largest consumer. Futures have plummeted more than a third this year, exacerbated by dwindling steel production. Conversely, oil prices rebounded from their lowest close since 2021.
Looking ahead, traders will be vigilant for upcoming US inflation data, amid concerns that the Federal Reserve may have delayed necessary rate cuts as recession risks mount. Treasury Secretary Janet Yellen sought to calm fears over the financial system, stating that there are no immediate warning signs. Fed Governor Christopher Waller expressed an open-minded stance on the possibility of a more substantial rate cut.
Morgan Stanley’s chief global economist, Seth Carpenter, remarked, “The August US nonfarm payrolls report was softer than anticipated, but not enough to alter our baseline outlook on the Fed—especially given recent data on spending and income that suggests ongoing economic momentum.”
