The global stock-market rout accelerated on Monday, led by a steep decline in tech shares. Nasdaq 100 Index futures fell 3%, while Japanese equities experienced their most significant crash in over a decade. Amid growing concerns about a US economic slowdown, traders now put the odds at 60% for an emergency interest rate cut by the Federal Reserve within a week. Treasury yields and the dollar also saw modest movements.
The unwinding of carry trades added to the market volatility, with Japan’s Topix index plummeting 12%—its largest three-day drop since records began in 1959. The yen surged 2%, and the yuan also rose, while the Mexican peso continued its decline as traders adjusted their strategies.
Charu Chanana, head of currency strategy at Saxo Bank, commented, “It’s a pretty dramatic shift in narrative, highlighting how much recent trends relied on expectations of a US soft landing. The more this assumption is questioned, the further equities could pull back.”
The market turmoil followed Friday’s data showing a weakening US jobs market, triggering recession fears. Investors are also worried about elevated valuations from the artificial intelligence rally and rising tensions in the Middle East. Berkshire Hathaway Inc.’s announcement of nearly halving its stake in Apple Inc. further dampened sentiment.
Nasdaq 100 futures dropped as much as 6.5%, nearing a circuit breaker trigger, before recovering to a 3% decline. S&P 500 futures fell 2%. Major tech stocks, including Nvidia Corp. and Apple Inc., suffered significant losses in premarket trading.
Europe’s Stoxx 600 benchmark fell 2.2%, heading for its largest three-day drop since June 2022, while the MSCI emerging-market index was on track for its biggest one-day drop since March 2022.
Global bonds erased their year-to-date losses, with Japan’s 10-year bond yield hitting its lowest point since April, falling by up to 17 basis points.
Goldman Sachs economists raised the probability of a US recession within the next year to 25% from 15%, joining other major banks in forecasting earlier or more significant interest-rate cuts from the Fed.
The growing perception is that the Fed may need to make an unusually large half-point move at one of its upcoming meetings or act between scheduled meetings to support growth. Charlie Ripley of Allianz Investment Management noted, “This should help the Fed remove the rose-tinted glasses when assessing policy decisions at the next meeting.”
Developing-nation currencies, led by Malaysia’s ringgit, appreciated while the Mexican peso continued to slide. The sudden rise in funding currencies like the yen and yuan hurt carry trades, which typically involve borrowing at lower rates to invest in higher-yielding assets.
Elsewhere, oil extended its decline from a seven-month low, influenced by the broader market selloff despite rising Middle East tensions. Israel is preparing for potential attacks from Iran and regional militias in response to recent assassinations of Hezbollah and Hamas officials. Cryptocurrencies also fell amid the global market risk aversion.