Fear of a recession in the USA, corrections in tech stocks, heavy losses in Bitcoin: the recent record-breaking mood on the stock markets has come to an abrupt end. And the losses are likely to continue for the time being.
Investors’ nerves are frayed at the start of the week on stock markets around the world. Friday’s slide continued seamlessly on Monday. An unexpectedly weak US labor market report had fueled fears of a recession in the USA and, as a result, a more significant slowdown in the global economy before the weekend, sending the stock markets into a tailspin.
Market participants believe it is possible that the US Federal Reserve has missed the opportunity to cut interest rates in a timely manner and could cut interest rates too late. Bad economic news – which was viewed positively some time ago because it raised hopes of interest rate cuts – is now also perceived as bad news because it fuels fears of a recession. Geopolitically, the situation remains very tense with a possible attack by Iran on Israel.
Correction in hot tech stocks
In addition to the weak data from the US job market, there were recently largely disappointing quarterly figures from the overheated US technology sector. The hype surrounding the trending topic of artificial intelligence (AI) may have gone too far, according to traders. On Monday, technology stocks on the Asian stock exchanges suffered from a report that chip manufacturer Nvidia is postponing the launch of new AI chips due to so-called design defects. Nvidia was recently the driving force of the general stock market rally as a major beneficiary of the booming topic of artificial intelligence.
“Investors are currently confronted with two unpleasant facts,” wrote analyst Jochen Stanzl from the trading house CMC Markets. “Firstly, the growth in the field of artificial intelligence comes with enormous costs, which reduces margins and suddenly makes high stock valuations seem exaggerated. And secondly, the restrictive monetary policy of the European Central Bank and the Federal Reserve is now having an effect.”
Fear barometer at high since mid-2020
In Europe, prices plummeted on Monday morning. The German leading index, the Dax, lost around three percent and was trending towards the 17,000 point mark. The losses for the Eurozone leading index, the EuroStoxx 50, were similar. In the USA, futures on the technology index Nasdaq 100 again indicate large declines of around four percent on Monday. The extent to which uncertainty is spreading in New York can be seen in the VIX fear barometer. This measures the intensity of fluctuations on the stock exchanges and reached a high since mid-2020 on Monday.
Share price falls by 12 percent in Japan
The losses in Europe are almost mild compared to the Japanese Nikkei 225, which suffered a price drop of more than twelve percent on Monday. Because the Tokyo benchmark index has now lost more than 20 percent from the record high reached in July, stock market traders are talking about a bear market. This means that the stock market is pessimistic and is characterized by falling prices. The recent significant rise in the national currency, the yen, is putting a heavy burden on the share prices of export-dependent Japanese companies. Unlike in Europe and the USA, interest rate cuts are not an issue in Japan. The Japanese central bank could rather raise interest rates.
International stock markets must now price in the risk of a recession, said market expert Daniel Saurenz from the investment portal Feingold Research, explaining the sell-off. “The Dax, Nasdaq and Nikkei were still at record levels just a few weeks ago and the Japanese are showing how quickly a party can end.”
Bitcoin plummets
The fact that investors on both sides of the Atlantic are avoiding risky investments at the start of the week is also evident when looking at cryptocurrencies that are considered highly speculative. Bitcoin, for example, continued to lose ground. The price of the oldest and best-known cryptocurrency fell to under 50,000 US dollars on the Bitstamp trading platform, reaching its lowest level since February. In addition to Bitcoin, other cryptocurrencies were also under strong selling pressure.
Currencies considered safe, such as the Japanese yen and the Swiss franc, benefited from the great uncertainty on the financial markets. The dollar fell to 0.8448 Swiss francs. This is the lowest level since January. Government bonds considered safe, such as those from Germany, also remained in demand. Futures for 10-year German and US bonds rose, while yields fell.
The crisis currency gold remained at around 2,422 US dollars per troy ounce (around 31.1 grams) on Monday. In mid-July, the price of gold reached a record high of 2,483 dollars.
Source: Stern
