Global stock markets experience "Black Monday"! European and American stock markets plummet, with the Japanese stock market plunging by 13%

According to the Zhitong Finance and Economics APP, global stock markets are experiencing intensified selling pressure due to market concerns about the Federal Reserve's slow action in supporting the slowing economy. As a result, US stock index futures have plummeted significantly, leading investors to turn to safe bonds.

The Nasdaq 100 index futures once plummeted by 6.5%, approaching the circuit breaker threshold, after the index experienced a technical correction last Friday. S&P 500 index futures dropped by over 2.5%.

European stock markets fell to nearly a six-month low at the beginning of this week. As of the time of writing, the STOXX 600 index in Europe fell by 3.1% to 482.42 points, marking the lowest level since February 13. It was also the worst day for the index in two and a half years. Last week, the index recorded its worst weekly performance in nearly 10 months, breaking below the 500-point mark for the first time since April 15.

All major exchanges in Europe opened lower on Monday, with the financial sector being the hardest hit. The European bank index fell by about 4.4%, hitting the lowest level since March.

Stock prices of Italian UniCredit, Commerzbank, and Deutsche Bank all fell by around 6%. Barclays Bank dropped by 5.4%, and Banco Sabadell in Spain fell by 4.9%.

In Japan, both the TOPIX index and the Nikkei index fell by over 13%. The benchmark stock index in Taiwan experienced its largest single-day decline in history, while Asian stock indices saw the largest drop in over four years. The Japanese yen rose by over 2.5% against the US dollar.

US Recession Concerns Trigger Selling Frenzy

Data released last Friday showed weakness in the US job market, sparking concerns among investors about a potential economic recession in the US, leading to a global stock market sell-off. Investors are also worried that the rise in AI stocks will inflate valuations, while tensions in the Middle East have heightened risk aversion. News of Warren Buffett's Berkshire Hathaway (BRK.A.US) significantly reducing its stake in Apple (AAPL.US) by nearly 50% also dampened market sentiment.

Charu Chanana, FX strategist at Shengbao Bank, stated, "This is a rather dramatic shift, indicating that recent trends are largely supported by expectations of a soft landing in the US. The more doubts there are about the soft landing in the US, the more likely the stock market may further correct."

The global stock market decline reflects concerns about economic prospects, geopolitical risks, and skepticism about the hype surrounding AI. Goldman Sachs economists have raised the likelihood of a US economic recession next year from 15% to 25%, but Goldman added that there is reason not to worry about an economic recession.

Meanwhile, the MSCI Emerging Markets Index fell by over 3%, potentially marking the largest single-day decline since March 2022. The sudden appreciation of funding currencies such as the yen and the renminbi has damaged arbitrage trades, which typically involve traders borrowing funds at lower rates to invest in higher-yielding assets Developing country currencies are strengthening, with the Malaysian Ringgit leading the way, while the Mexican Peso continues to decline as traders unwind emerging market arbitrage trades.

Elsewhere, escalating tensions in the Middle East have led to broader financial market sell-offs, with oil prices continuing their downward trend to a seven-month low. Cryptocurrencies were also affected by global market risk aversion on Monday.

Fed Rate Cut Expectations Rise, Bonds in Favor

Weaker-than-expected US July nonfarm payroll data has heightened concerns about a US economic recession and increased the likelihood of a Fed rate cut in September.

Analysts at Morgan Stanley and Citibank predict that the Fed will cut rates three times by the end of 2024, with 50 basis points cuts in September and November, followed by a 25 basis points cut in December.

Safer bonds are favored by investors. The yield on the 10-year US Treasury fell by 5 basis points to 3.74%, marking the lowest closing level in over a year. The 2-year Treasury yield plummeted by 11 basis points as traders bet that the Fed's September rate cut may exceed expectations. Global bonds have regained lost ground for the year.

Japan's benchmark 10-year government bond yield fell to its lowest level since April this year, dropping by as much as 17 basis points on Monday. As declining bond yields could erode loan profitability, Japan's largest bank, Mitsubishi UFJ Financial Group, saw its stock price experience its largest intraday decline ever.

Charlie Ripley of Allianz Investment Management stated: "From the Fed's perspective, this doesn't mean they need to rush into policy decisions, but it should help them take off their rose-colored glasses when evaluating policy decisions at the next meeting."