Equity Markets Suffer Global Sell-Off

Equity markets have been under pressure this morning following a sell-off which has spanned Asia, Europe and North America.

In Japan, the TOPIX index sank 5.5% in the first hour of trading, before closing the day 6.14% lower. It was a similar story with the Nikkei 225 index which suffered its second worst day ever after 1987’s black Monday crash. Such sell-offs followed Thursday’s falls which saw the TOPIX shed 3.2% over the course of the session.

Across the Sea of Japan, the South Korean benchmark Kospi index fell just shy of 4%.

Across the Pacific, in the US the S&P 500 has fallen 1% in afterhours trading, following a string of quarterly results from big tech companies which missed expectations. This included Amazon sinking 7%, while Nvidia and Tesla fell 6.7% and 6.6%, respectively.

Markets appeared particularly spooked by Intel’s announcement that they would slash capital spending and headcounts in addition to ditching its dividend payments. This saw the US chipmaker plummet over 20%, as concerns around the health of the global tech market spread. Such fears fed into pressure on the tech heavy Nasdaq 100 which shed 2% of its value.

The Fed’s decision to hold rates on Wednesday evening also has many concerned that persistently tight monetary conditions will unnecessarily hinder growth. Such concerns were exacerbated by the US’ ISM Manufacturing index falling well short of expectations yesterday as investors considered how the resilience of the US economy may be subsiding.

In Europe, following a 2.1% fall in the DAX yesterday, the German benchmark index has slid another percent today, while the French CAC also lost 2.1% of its value yesterday with stocks in the country’s banking sector seeing particularly heavy losses.

While the global sell-off has been felt in the UK, thus far it has been somewhat less pronounced. The FTSE 100 has fallen around half-a-percent this morning, following a 1% fall over the course of yesterday’s session.

Yesterday the Bank of England conducted their first rate cut in four years, bringing their benchmark policy rate down from 5.25% to 5%.

Following seven consecutive holds (which has seen rates being held at 16-year highs for almost a year), the BoE now joins the likes of the ECB, SNB, BoC and Riksbank who have loosened monetary conditions given easing inflationary pressures and considerations around economic growth.

Going into the decision, money markets were implying that there was around a 60% of Threadneedle Street cutting rates 25bps. The vote ultimately carried with five votes opting for a cut against four favouring a hold.

Nevertheless, the BoE Monetary Policy Summary warned that “there is a risk that inflationary pressures from second-round effects will prove more enduring in the medium term.” (The central bank for example expects inflation to rise from the current 2% level to 2.75% in H2).

As such, policy makers telegraphed that “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.” Such hawkish rhetoric ultimately helped support sterling as markets adjusted their medium-term interest rate expectations.

Following the global sell-off in equity markets, markets will be paying considerably close attention to the release of today’s US labour market data.

At 1330 this afternoon, attention will turn to the release Nonfarm payrolls where the market consensus is expecting a print of 175,00 which would mark a slowdown from last month’s figure of 206,000.

Last month, we saw how the Fed’s minutes highlighted how “with the labor market normalizing, a further weakening of demand may now generate a larger unemployment response”. US unemployment is currently at its highest level since November 2021, having come in above expectations during last month’s payrolls print.

While analysts are pointing to a softer print it remains well above the 100,000 figure that last year Powell cited as a level which is in line with population growth while not overly impacting inflationary pressures.