Global stock markets slump amid US growth fears – business live | Business

So what should we expect from the US jobs data?

The key figure is the number of jobs added to non-farm payrolls. (It strips out farm workers because their employment is highly seasonal.) Economists polled by Reuters expect the US economy added 175,000 jobs in July, down from 206,000, but still a level that would indicate a relatively healthy economy.

Wage data is published at the same time. The increase in annual wages in June at 3.9% was the smallest in more than three years, suggesting inflationary pressures might be easing. Economists expect that to drop to 3.7%.

Anything much lower than the consensus prediction would be likely to deepen the stock sell-off, with investors concerned about whether the US Federal Reserve has done enough to pull off a “soft landing” and avoid a recession as the economy slows.

The Federal Reserve held interest rates steady on Wednesday but signalled that it may loosen monetary policy in the future.

A September interest rate cut is a near certainty, according to Matthew Ryan, head of market strategy at Ebury, a financial services firm. He said:

The main question now surrounds the pace of easing beyond the September meeting.

Market participants have viewed Powell’s remarks as an indication that the Fed could cut rates at every meeting during the remainder of the year. Our base case remains for just two cuts in September and December, although the heavy emphasis placed by the Fed on the labour market suggests that this is not guaranteed.

Today’s NFP report will take on added importance, with economists eyeing a modest easing in both net job creation and annual wage growth.

The global stock market sell-off has deepened across many of Europe’s most prominent indices, with investors nervously awaiting US jobs numbers that will be closely watched for further signs of a weakening American economy.

Germany’s Dax benchmark is down 1.5%, Italy’s FTSE MIB is down 1.7%, and France’s Cac 40 has fallen 0.6%. London’s FTSE 100 is down 0.4%.

Investors sought the safety of government bonds. The price of US 10-year Treasuries rose as demand rose, pushing the yield on the benchmark bond below 4% for the first time since February. Yields (which move inversely to prices) also fell on German and UK 10-year debt.

Pierre Veyret, technical analyst at ActivTrades, a trading platform, said:

Many investors are losing confidence after the Fed held interest rates unchanged during the latest FOMC meeting earlier this week. The latest batch of disappointing macro data, especially on the employment front, is spreading the sentiment that the Federal Reserve may be behind the curve with its monetary policy.

Volatility is likely to remain high today as investors wait for the US NFP data, hoping it will provide more clarity on the employment sector of the top economy in the world. If the US NFP and unemployment data confirm a tighter situation, this would likely support the idea that the Fed may be late with the start of its monetary easing cycle, which could fuel the current equity sell-off further.

Gold prices have rallied today – a move often associated with a shift out of riskier growth assets towards safety.

The yellow metal should not be a great investment: it has limited uses beyond jewellery and some electronics, and it does not offer any future returns beyond the hope that you can sell it for more later. Yet it continues to play an important part in the balance sheets of central banks, investors and households around the world.

Gold futures prices tracked by MarketWatch reached a new record of $2,500 per troy ounce on Friday, as investors expressed concerns about the health of the US economy and sold off company shares.

Spot gold prices tracked by Refinitiv also showed gold prices up 0.8% at $2,464 per troy ounce, although that remained short of the $2,483 record mark hit a fortnight ago.

Wall Street’s Nasdaq stock index, which traces many of the US’s tech giants, is set to fall heavily when it opens at 14:30pm BST – and it could be enough to signal a “correction”, when shares fall 10% from their peak.

Futures trades indicate that the Nasdaq will fall by as much as 1.8% at the opening bell.

Stock market corrections often follow periods of exuberance, as economic cycles turn and investors start to consider the potential for slowing output, and therefore lower profits.

A bear market is when shares fall by more than 20% – and that is often associated with recession, such as when the coronavirus pandemic lockdowns stopped activity in many sectors.

One of the biggest fallers among Europe’s large-cap stocks today is computer chip toolmaker ASM International.

ASM fell by 11% on Friday as it got caught up in the European tech stock sell-off.

The Dutch company (whose initials originally stood for Advanced Semiconductor Materials) makes equipment for depositing thin films of material on to silicon. That is a key step in the manufacture of the millions of tiny transistors that make up a computer chip.

ASM’s share price had risen to a record of nearly €750 three weeks ago as the hype around AI pushed up anything to do with computer chips. But since then its value has slumped by a quarter, as investors have questioned whether the exuberance went too far. It’s market value was €31bn (£26bn) before Friday’s slump.

However, ASM investors won’t be feeling too put out: the company’s shares are still up 19% this year, and have more than doubled since the start of 2023.

N.B., ASM International is different to the much more valuable ASML, a fellow Dutch listed company. ASML makes the lithography machines that use light to etch the transistor patterns in semiconductors. ASML is down by 8% today.

The similarity in the names comes from the fact that ASML was once a subsidiary of ASM. ASML has become much more valuable since spinning off. It was worth €332bn before today’s fall.

Ryanair has revealed it cancelled some 650 flights in July because of air traffic delays, while rival Wizz Air said the global technology outage that hit Windows computers directly disrupted about 1% of its flights, Press Association reports.

The two airlines reported the impact of disruption as they unveiled how many passengers they flew last month.

Low-cost airline Ryanair said it flew 20.2m passengers in July, an 8% jump on the 18.7m people on its flights the same time last year.

Chief executive Michael O’Leary recently said the group “suffered a serious deterioration in European air traffic control capacity which caused multiple flight delays”.

O’Leary called for reform of air traffic control which he described as “hopelessly inefficient”.

Apple managed to buck the trend of weak tech earnings last night. It is once more the biggest listed company in the world by market value after the sell-off in Nvidia in recent weeks.

Like Nvidia, the iPhone maker is seen as a possible beneficiary from the artificial intelligence hype cycle. The company hopes its introduction of AI features will drive customers to buy its latest phones – after a period in which features have stagnated somewhat.

The Guardian’s tech reporter, Kari Paul, last night reported:

Apple reported better-than-expected earnings in the third quarter of 2024, with buzz about its new AI features offsetting a continuing decline in its key China market.

Earnings exceeded analyst predictions despite a year-over-year decline in iPhone sales, with revenue rising 4.9% to $85.78bn in the three months ending 29 June, beating the average analyst estimate of $84.53bn. The company maintained its cash dividend at 25 cents for each share.

The strong report represented a bright spot in the tech space after difficult earnings reports from other tech giants like Amazon, Snap and Intel. The market saw a sell-off on Thursday amid disappointing results, including from Intel – which announced plans to cut more than 15,000 jobs as it tries to cut billions of dollars in costs to turn its business around. Amazon’s stock also dropped more than 4% on Thursday after the company reported lower-than-expected sales this quarter and forward-looking statements indicating a continued slowdown in the next.

Checking in a mid-morning, and every major stock market index in Europe is down on Friday.

Germany’s Dax is down 1.1%, while Italy’s FTSE MIB is down 1.2%.

The FTSE 100 is faring somewhat better, down by only 0.3%. That is likely in part down to the Bank of England’s decision on Thursday to cut interest rates.

The mid-cap FTSE 250 index yesterday hit its highest level since February 2022 before getting caught up in the global stock rout. FTSE 250 shares are down by 1.2% today.

“August is so far off to a bad start”, said Russ Mould, investment director at AJ Bell, an investment platform.

The prospect of interest rate cuts might usually be a good thing for share prices, as the cost of borrowing falls. But before that, investors need to price in that lower interest rates reflect weaker economic activity, in the endless cycle of monetary policy.

Mould said:

An economy going through a bad patch is one catalyst for a central bank to cut rates and hopefully stimulate activity. This thought process is likely to be at the top of the agenda for the Fed this week after shocking US economic data that featured bigger than expected jobless claims and contraction in manufacturing. The narrative has changed from rate cuts equating to good news to rate cuts meaning measures to avoid recession.

Investors have been on the edge of their seats in recent weeks, taking profits in some of the previously strongest areas of the market like tech and redeploying the proceeds into value stocks that offer slower growth but at a much cheaper price.

Rolls-Royce shares are down 0.7% today, but it is one big spender on technology research and development that is not having a tough 2024: on the contrary, its share price hit a record high on Thursday after it published strong financial results.

Today the Financial Times reports that the company is giving each employee shares worth £700, the first time that it has gifted stock to workers.

Chief executive Tufan Erginbilgic came in at a good time, when the restart of international travel after the coronavirus pandemic meant that demand for its jet engines was recovering. But he has also improved profitability by renegotiating some contracts with customers.

And he also has his eye on new opportunities, such as re-entering the larger market for engines for single-aisle planes – Rolls-Royce only makes engines for big, twin-aisle planes at the moment – and also small modular reactors, which advocates hope can be a cheaper source of nuclear energy.

European tech firms are also struggling today – as the US tech sell-off spreads across the world.

The Stoxx Europe 600 tech index has fallen 3.3% today, to its lowest point since January.

Tech stocks were buoyed by hype around artificial intelligence that briefly made US chip designer Nvidia the most valuable listed company in the world. Yet investors are increasingly questioning whether the AI boom will translate into profits in the next few years.

Has the US Federal Reserve acted too late to stop a painful slowdown in the US economy?

The Bank of England yesterday cut interest rates for the first time since the coronavirus pandemic, as its rate-setters narrowly judged that inflation looks set to fall back to below target.

But it is the Fed that will have the biggest effect on global markets, given its control of the supply of money to the world’s biggest economy. It will be a month-and-a-half until the next Fed meeting.

Financial markets are now pricing in a 100% chance that the Fed, led by chair Jerome Powell, will cut rates in September. They have moved on to asking: by how much?

Here is CME’s FedWatch tool, which shows that markets are putting a nearly 30% chance on a rate cut of 0.5 percentage points – although the stronger chances are seen for a standard 0.25 percentage point cut.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, an investment platform:

There are now concerns that the soft-landing scenario priced in for most of the year could be a pipe dream, and the Federal Reserve might have missed its chance to prevent an economic slowdown by not acting on rates earlier in the week. US jobs are out today, and further weakness here will simply exacerbate the current sell-off. Bad news is back to being simply bad news.

The biggest riser on the FTSE 100 this morning is British Airways owner International Airlines Group (IAG). It is up by 3%.

IAG scrapped a proposed takeover of Spain’s Air Europa, saying it would struggle to mollify regulators who had competition concerns. Investors were clearly not enthused.

IAG also posted stronger-than-expected profits for the second quarter, surprising analysts after rivals – particularly lower-cost carrier Ryanair – had warned of falling demand.

And speaking of British Airways:

It is what is known as a “risk-off” day on global stock markets: when traders sell riskier growth-focused shares and batten down the hatches for financial market squalls.

London’s FTSE 100 index is down 0.3% in the opening trades, but it is among the better performers in Europe.

Here are the opening snaps via Reuters:

• EUROPE’S STOXX 600 DOWN 0.9%

• FRANCE’S CAC 40 DOWN 0.6%; SPAIN’S IBEX DOWN 1%

• EURO STOXX INDEX DOWN 0.7%; EURO ZONE BLUE CHIPS DOWN 0.7%

• GERMANY’S DAX DOWN 1.1%

Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.

Stock indices around the world have slumped after weak manufacturing data and company earnings raised concerns that the US economy may be on its way to recession.

Japan’s Nikkei index fell 5.8% and the broader Japanese Topix fell 6.1%, Australia’s ASX fell 2.5%, and Hong Kong’s Hang Seng was down 2.2%. That Nikkei performance was the worst since March 2020 – the coronavirus pandemic slump.

It followed steep equity declines in the US yesterday, with the small-cap Russell 2000 index down 3%, and chip designer Nvidia’s slump from record heights continued.

Analysts led by Jim Reid at Deutsche Bank, highlighted weak earnings from Amazon, and said that investors appear to be betting that the Federal Reserve steps in to prop up economic growth. They wrote:

The past 24 hours have seen an increasingly precarious backdrop for risk markets, with a risk-off mood on the back of another batch of weak US data yesterday followed by mostly downbeat tech earnings overnight.

Futures are now pricing in over 175bps of Fed rate cuts over the next 12 months, which is the sort of pace that we’ve only seen in a recession in recent cycles.

Intel, the US chip manufacturer, was one of the biggest additions to the gloom – and adding to the recent sell-off among semiconductor businesses. It is a huge name, and has received vast subsidies to build new chip factories in America, but it is struggling.

Its shares are down 19% in pre-market trading after it reported unexpectedly weak earnings and a plan to cut 15% of its workforce – a number that translates to more than 17,500 jobs globally.

It is a similarly drab picture across the US manufacturing sector, according to the Institute for Supply Management’s closely followed purchasing managers’ index (PMI).

Kyle Rodda, senior financial market analyst at Capital.com, an online trading platform, said:

Stocks plunged following an ISM Manufacturing PMI survey which revealed a bigger-than-expected slowdown in factory activity in the States, raising the spectre of a steeper drop in economic growth. Historically, it’s when the ISM Manufacturing number falls below 43 that the US economy falls into recession; so, while the index is a long way from that threshold, the markets will be keeping a close eye on how it trends as the US economy moderates.

Investors today will be on tenterhooks for US jobs numbers. A weaker-than-expected non-farm payrolls number could really put the pressure on the Federal Reserve to accelerate its expected interest rate cuts.

The agenda

• 1:30pm BST: US non-farm payrolls (July; prev.: 206,000 jobs; cons.:176,000)

• 1:30pm BST: US unemployment (July; prev.: 4.1%; cons.:4.1%)

• 1:30pm BST: US average earnings (July; prev.: 3.9% year-on-year; cons.:3.7%)