Worries about the Federal Reserve's "slow pace" trigger a stampede-style sell-off in global stock markets

According to the Wisdom Financial APP, as more signs of a slowdown in the U.S. economy stimulate people to turn to safe-haven assets such as U.S. Treasuries and gold, a global stock market sell-off is unfolding.

On Friday, Asian stock markets followed the global plunge, with the Japanese stock market experiencing its worst day since 2016. Chip manufacturers also joined the selling spree of U.S. tech stocks, with major manufacturer SK Hynix plummeting by 10%. European stocks also fell after the opening, with the STOXX 600 Technology Index in Europe dropping by 3.3% at one point, hitting the lowest level since January. Overall, traders are withdrawing funds ahead of the release of a potentially crucial non-farm payroll report tonight.

This trend highlights that market sentiment has quickly deviated from people's expectations of the Fed achieving a soft landing for the economy. Fed Chairman Powell admitted this week that economic data is weak, reinforcing bets that the Fed will need to cut interest rates three times before the end of the year. This week, the rush to buy U.S. Treasuries pushed the 10-year bond yield below 4% for the first time since February.

Billy Leung, an investment strategist at Global X Management in Sydney, said, "The situation is changing rapidly after the Federal Open Market Committee (FOMC) confirmed the rate cut path in September. With manufacturing and employment data pointing to recession levels, investors are now starting to question whether the Fed's rate cut is too late."

Data shows that the Nikkei 225 index in Japan plummeted by 6.1% on Friday, while the MSCI Asia-Pacific index fell by about 3.4%. Prior to this, both the S&P 500 index and the tech-heavy Nasdaq 100 index fell on Thursday. This week, the yield on the policy-sensitive two-year U.S. Treasury fell by over 25 basis points, while gold approached record highs.

Forecasters expect that the July U.S. monthly employment data will show a slowdown in job and wage growth, highlighting further weakness in the labor market. A survey indicates that after adding 206,000 jobs in June, employment in July may only increase by 175,000.

Lagging Behind the Yield Curve

Investors are increasingly concerned that the Fed's reluctance to cut rates is jeopardizing its efforts to avoid an economic slowdown. The derivatives market currently expects the U.S. to cut rates about three times this year, meaning a 25 basis point cut at each meeting before the end of the year. In contrast, the Fed's latest dot plot in June showed only one rate cut this year.

Gary Dugan, Chief Executive Officer of the Global CIO Office, said in an interview, "In the coming days, (the market) may even discuss whether the Fed must cut rates by 50 basis points at the next meeting to make up for the lost momentum in the economy. In a situation of huge changes in market sentiment, a pullback of 10% to 15% from the peak is not surprising, as central banks appear to be far behind the yield curve." Risk assets have suffered heavy losses in the past few trading days for other reasons. Poor performance from Microsoft (MSFT.US) to Amazon (AMZN.US) has dampened market sentiment, and the weakening optimism of investors towards artificial intelligence has also dragged the market down. The tension in the Middle East has intensified after the political leader of Hamas was assassinated in Tehran, Iran.

The Japanese stock market experienced particularly intense selling. The Nikkei 225 index fell by 5.8% on Friday, while the bank sub-index of the TOPIX index recorded its largest single-day decline since 2008. Both major benchmark indices have entered a technical correction.

The prospect of tightening monetary policy following the rate hike by the Bank of Japan this week is unsettling the country's stock market.

Jun Rong Yeap, market strategist at IG Asia Pte, said, "The Bank of Japan opening the door for further tightening of monetary policy in the coming months has triggered a massive sell-off in the Japanese stock market, exacerbating the weakness in risk sentiment across the region." He added that the decline in the Nikkei index may extend to 35,200 points before stronger buying on dips emerges.

Mark Cranfield, strategist at Bloomberg Markets Live, said, "Ahead of the September FOMC meeting, the U.S. will release two inflation reports. If more cracks appear in the labor market, coupled with data showing a cooling CPI, this will intensify the argument that Powell is behind the curve."

The two-year U.S. Treasury yield is set to rise for the fourth day, falling to its lowest level since May 2023. Previously, Bloomberg's U.S. Treasury Index closed at its highest level in two years on Thursday. Gold prices rose by 3.3% this week, nearing the historical high set in mid-July.

Chetan Seth, Asia-Pacific equity strategist at Nomura Holdings, said, "Investors are suddenly feeling fearful, believing that 'bad data is indeed bad news for the stock market' because the U.S. may not experience a soft landing. Tonight's non-farm payroll report is now a huge focus, with stock investors hoping we won't see a report far below expectations. This is a reminder to stock investors to be cautious."