Global stock market crash: Heading for another financial crisis or market overreaction?

The Asian, European and Wall Street stock markets suffered a general decline This Monday in the middle of a feeling of panic, product of two simultaneous concerns that were strengthened: on the one hand, the possible recession in the United States and, on the other hand, the appreciation of the yen, after the rise in interest rates paid by the Bank of Japan (BoJ).

What happened was that the employment figures in USAworse than expected, generated a feeling in the markets that it is possible that we are entering a period of recession, instead of a “soft landing”, which would force the Fed to cut rates further than expected to contain activity.

On the other hand, on this day, The yen rose against the dollar. Last Wednesday, the Boxwood raised its target rate to 0.25%, the highest level since 2008. This complicated the “carry trade” that had been generated: basically They took advantage of the very low rates in Japan, and with that money they invested in other countries such as the United States.

“The US unemployment data triggered an unwinding of yen carry positions, amplifying the moves. Many investors had leveraged this currency to buy American stocks, taking advantage of the low rates in Japan and a Japanese currency that continued to depreciate,” Facimex explained.

However, on Friday it was revealed that unemployment in the United States rose to 4.3% in July, from 4.1% in June. The figure led to the “Sahm ​​Rule”, a historical indicator used by the Fed to predict recessions, forecasting that the US economy is entering a recession or will do so at some point in the next six months.

Panic in the markets: stock markets have collapsed

Wall Street closed with strong losses: The Dow Jones lost 2.6%, the Nasdaq sank 3.4%, and the S&P 500 fell almost 3%. For its part, in the old continent The main indices fell across the board: the IBEX Madrid (-2.3%), the Frankfurt DAX (-1.8%), London’s FTSE 100 (-2 and the CAC of Paris (-1.4%), while The Euro STOXX did so with -1.5%. But the epicenter of the earthquake occurred in the early hours of the day, when Tokyo collapsed.

The Nikkei 225, its main index, which had already fallen 5.8% on Friday, lost 13.5%, or 4,451.28 points.on this day to close at 31,458.42 points, breaking its record for losses dating back to the stock market crash of October 1987. Separately, influenced by this crash, Taiwan fell more than 8% and Seoul more than 9%. Chinese stock markets, meanwhile, fell more moderately.

Heading for another financial crisis or market overreaction?

For the stockbroker PPIthe upcoming economic news related to the level of activity and the labor market in the United States will be key.The market believes that Powell made a mistake and that he will have to correct his mistake in September. “It is discounting a 50 basis point cut in the reference rate for the next meeting and a total of 125 points for the rest of the year. There is even speculation that the Fed will organize an emergency meeting in the next few days to lower the reference rate,” they analyzed.

For its part, from Adcapthey said: “We see a market with a lot of volatility and uncertaintyI think that two sides are going to be formed in the market: between the people who do believe that there will be an impending recession and others who believe it can be avoided and a ‘soft landing’ is an option“For now, they recommended taking the positions calmly and calmly watching what will happen. The next few days will be important to have more clarity on what position wins in the market.”

“The New York Stock Exchange has fallen by more than 8% in less than a month and The market expects the Federal Reserve to cut interest rates interest rate in september“, analyzed this day, Mauro NatalucciAccount Executive Rava He added: “Continuing with the stocktaking season, Berkshire Hathaway reported quarterly results that beat analysts’ estimates. However, The share price was dragged down by the market“.

For its part, from Stock Market Bellthey recommended, to investors to wait until Thursday to Assess the situation of the labour market with the publication of unemployment benefit applicationswhich are expected to decline from their highest level in almost a year. “Although most large-cap companies have already reported their results, Some high-profile reports are expected this week (Caterpillar, Walt Disney, Eli Lilly, Super Micro Computer, among others)”, they said.

Finally from Cohenin their report of the day, explained: “In our opinion, The market is overreacting to events, as the outlook for the economy remains positive, with activity levels naturally on a soft-landing path.. In a week with a light publication calendar, all eyes will be on the indicators of service activity, the trade balance and the financial year-end season, which is entering its final stretch.”