Shares in New York and London tumble on fears of US recession

Shares on Wall Street and in London have fallen heavily amid a global stock market rout triggered by fears of a recession in the US.

The tech-focused Nasdaq index dropped by 6% as trading in New York opened on Monday, while the broader S&P 500 index fell by 4.2% in a sell-off triggered by weak US jobs data. The Dow Jones industrial average lost more than 1,100 points, a 2.8% decline.

Japan’s benchmark stock index, the Nikkei 225, suffered its biggest decline for nearly four decades. It was down by 12%, the biggest single-day fall since the Black Monday crash of 1987. Other stock indices around the world were lower as investors dumped riskier assets. South Korea’s Kospi fell by 9%, Germany’s Dax was down 2%, and share indices in Australia, Hong Kong and China also fell heavily.

London’s FTSE 100 fell by 2.7% to 7,951 points, on track for its lowest close since April.

Investors are concerned that the Federal Reserve may have left it too late to try to support the world’s biggest economy. A US recession would hurt economies around the world.

A much-anticipated report on Friday showed the US economy added just 114,000 jobs last month, well down from June and far fewer than expected, while the jobless rate rose to the highest level since October 2021. Weak factory data last week also added to concern about a recession less than 100 days from the US presidential election.

The investment bank Goldman Sachs said in a note to clients that the chances of a US recession had risen from 15% to 25%. However, its economists, led by Jan Hatzius, said“we continue to see recession risk as limited” because there were no big financial imbalances.

Nevertheless, investors bought up assets perceived as safer. The yield on 10-year US bonds fell 10 basis points to 3.68%, the lowest since June 2023, as prices for government bonds around the world jumped.

Jim Reid, the global head of macro research at Deutsche Bank, said there had been “astonishing moves” in share prices, and “markets are melting down in Asia”.

“Markets were on edge before Friday but a weak payrolls has really escalated a profound move across the globe,” he added. However, he said the US jobs numbers may have been affected by Hurricane Beryl, and that the dramatic market moves could have been exacerbated by volatility in August, with many investors on holiday.

“It’s like the market has added up two plus two and made nine,” he said.

Austan Goolsbee, the president of the Chicago Fed, one of 12 banks that make up the US Federal Reserve, told CNBC the US economy did not appear to be entering recession, even though Friday’s jobs data was worse than expected.

Yet investors did not appear to take that message to heart. The Vix, Wall Street’s “fear gauge”, soared to its highest level since the coronavirus pandemic. The index, a measure of stock market volatility, rose to 65 points before sliding back to an 80% gain for the day.

Some of the biggest losers were the tech companies that had been buoyed in recent months by the hype around artificial intelligence. Investors began to question whether the rally could continue even before the poor economic data.

Tech valuations dropped further. The US chip designer Nvidia briefly became the world’s most valuable listed company in June but it fell 10% on Monday to hit its lowest since May, 28% lower than its peak.

Apple, Amazon and the Facebook owner Meta shed more than 4%. In Asian trading, the chip company TSMC and Samsung lost 10%. In London the biggest faller was THG, which sells retail technology to brands and runs online shops.

In Tokyo, the Nikkei 225 has fallen heavily for three consecutive trading sessions, and it is down by a quarter from its record high just a month ago. Last week the Bank of Japan signalled the end of more than a decade of monetary stimulus, adding to the pressure on Japanese stocks.

The yen rose sharply by 2.6% against the US dollar as investors reacted to the prospect of higher interest rates in Japan and lower across the Pacific. The dollar fell by 0.8% against a trade-weighted basket of currencies.

Bitcoin also slumped by 16% as traders ditched the cryptocurrency, which is often seen as a speculative asset that has been bolstered by low interest rates.