Amid fears of a looming recession, global stock markets took a hit on Friday as fresh economic data raised concerns about the state of the economy. Initial jobless claims in the U.S. saw their largest increase since August 2023, while the ISM manufacturing index, a key indicator of factory activity, came in at 46.8% – worse than expected and signaling economic contraction.
The weak data prompted a sell-off in U.S. stocks, with European and Asian markets following suit. Japan’s benchmark indexes plummeted over 5% on Friday, marking the Nikkei index’s worst day in more than four years.
Cedric Chehab, global head of country risk at BMI, highlighted a mix of factors contributing to the market turmoil, including hawkish messaging from the Bank of Japan, poor U.S. manufacturing data, and volatile earnings reports. Chehab emphasized that such corrections are normal, especially given the historical trend of increased market volatility between July and October.
While Federal Reserve Chair Jerome Powell hinted at a possible rate cut in September, some experts caution against rushing to buy the dip. Shane Oliver, head of investment strategy at AMP, noted that shares may continue to face downward pressure, suggesting it may be too early to capitalize on the market dip.
Looking ahead, market focus shifts to the nonfarm payrolls report for further insights into the economy’s health and potential Fed actions. Analysts at Deutsche Bank underscored the heightened risk-off sentiment in the market following weak data and tech earnings reports, emphasizing the importance of the upcoming jobs report.
As investors await the latest labor market data, Mizuho rates strategist Evelyne Gomez-Liechti highlighted consensus projections for a decrease in payrolls to 175,000 in July. Nonetheless, Mizuho’s U.S. economists foresee a potential upside surprise, anticipating payrolls to reach 210,000 for the month.
In conclusion, the recent market turbulence underscores the fragile state of the global economy, with investors closely monitoring economic indicators and central bank responses. The impending nonfarm payrolls report will provide crucial insights into the trajectory of the economy and potential market impact in the coming months.
