Global markets in turmoil over US recession fears
- Weaker-than-expected jobs numbers fuel fears of economic slowdown
- Only 114,000 jobs were created in July, fewer than the estimated 175,000.
- ‘Disappointing’ numbers fuel fears US is headed for recession
The US Federal Reserve was accused last night of cutting interest rates “too late” after weaker-than-expected employment figures fuelled fears of an economic slowdown in the world’s largest economy.
According to official figures, only 114,000 jobs were created in July, below analysts’ estimates of 175,000 jobs.
The “disappointing” figures fuelled fears that high interest rates had slowed growth and that the US was heading for a recession.
That accelerated a global stock market sell-off sparked by disappointing U.S. corporate earnings and dismal economic data. Tech stocks were hit hardest as analysts warned that artificial intelligence was in a “bubble.”
This week, the US central bank kept borrowing costs at a 23-year high of between 5.25 and 5.5 percent. The employment figures put pressure on the bank to cut rates in September – the last chance before the November elections – and possibly several more times before the end of the year.
Floored: A trader on the New York Stock Exchange
However, analysts warned that policymakers may have delayed borrowing costs too long to achieve a “soft landing” for the economy, which would bring inflation back down to target without triggering a major increase in layoffs.
Investors were already nervous after a survey this week showed a bigger-than-expected contraction in the U.S. manufacturing sector.
Russ Mould, investment director at AJ Bell, said: ‘The narrative has changed from rate cuts equating to good news to rate cuts representing measures to prevent a recession.’
The S&P 500, Dow Jones Industrial Average and the tech-focused Nasdaq Composite index all fell deep into the red yesterday.
Shares of chipmaker Intel fell about 26 percent after the company announced plans to cut 15,000 jobs amid disappointing profit forecasts.
And Amazon fell nearly 10 percent after warning that its revenue for the quarter would be lower than previously estimated.
Shares in chipmaker Nvidia fell 3 percent after hedge fund Elliott Management told investors the Korean company was in a “bubble” and its AI technology was “overhyped.” The prospect of a collapse in the world’s largest economy sparked a global sell-off.
Japan’s benchmark Nikkei 225 saw its second-largest points drop in history, falling as much as 5.8 percent.
London’s FTSE 100 fell 1.3 percent and the pan-European Stoxx 600 index fell 2.73 percent.
Ebury analyst Matthew Ryan called it an “extremely weak US labor report.”
“The undoubtedly disappointing data has reinforced concerns that the Fed may be too late in cutting US interest rates,” he said.
Richard Flynn, managing director at Charles Schwab UK, said: ‘Today’s figures could raise concerns that central bankers have not acted quickly enough to cut interest rates, sending the labour market into a downward spiral.
“The Fed’s long campaign of rate hikes is so close to achieving its inflation target. Let’s hope its success doesn’t cause the labor market to collapse.”
Steve Clayton, at Hargreaves Lansdown, said the jobs report would “fuel speculation” the Fed could move more than 25 points in September, making further cuts this year more likely. It comes after the Bank of England cut interest rates from a 16-year high of 5.25 percent to 5 percent at a meeting on Thursday.
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