Global Market Sell-Off as U.S. Economic Concerns Escalate

Global Market Sell-Off Amid Economic Concerns

A significant sell-off across global markets escalated into a full-blown rout on Monday, as investors reacted anxiously to indications of a slowing U.S. economy. Stock prices plummeted throughout Asia, with Japan experiencing particularly severe declines.

The Topix index, which encompasses a wide range of Japanese companies, witnessed a staggering drop of 12.2 percent, marking its largest one-day loss in over three decades. This dramatic decline at one point activated a “circuit breaker” mechanism designed to halt trading and allow the market to absorb such large fluctuations. Similarly, the Nikkei 225 index, often viewed as Japan’s benchmark, fell by 12.4 percent.

In South Korea, the benchmark Kospi index also suffered, declining by more than 10 percent and prompting a trading halt of its own. Other equity markets in Taiwan, Singapore, Australia, and Hong Kong followed suit with notable losses.

Market analysts anticipated that these declines would carry over into European and U.S. markets on Monday. Futures for the S&P 500 dropped by more than 3 percent, while Nasdaq futures plummeted by 6 percent. Key European indexes, including those in Germany, were also projected to decline by over 2 percent.

In the cryptocurrency realm, Bitcoin experienced a sharp decline, plummeting nearly 14 percent, reflecting heightened investor anxiety. This turmoil followed a U.S. jobs report released on Friday, which revealed a significant slowdown in hiring during July, coupled with a rise in unemployment to its highest level in nearly three years. These developments intensified concerns regarding a cooling economy and led to fears that the Federal Reserve may have delayed necessary interest rate cuts.

Nomura, a prominent Japanese investment bank, commented in a research note on Monday that the “slowing U.S. data causes a growth scare for markets,” reigniting fears of a faster-than-expected economic downturn in the U.S. In light of the disappointing jobs report, Goldman Sachs revised its outlook, now expecting the Federal Reserve to implement interest rate cuts at its next three meetings—a more aggressive timeline than previously anticipated.

In Japan, the disappointing U.S. economic indicators further compounded investor unease. The Topix index has now declined over 20 percent since last Wednesday, when the Bank of Japan raised interest rates for only the second time in nearly twenty years. Trading halts were also triggered for long-term Japanese government bonds, alongside the Nikkei 225.

Japanese stocks had enjoyed a robust rally for more than a year, primarily fueled by a weaker yen, which had bolstered the earnings of Japanese exporters. However, in the past week, the yen has experienced a notable appreciation.

To add to the market pressure, foreign investors have started liquidating their positions in Japanese stocks over the last several weeks. The latest data from the Tokyo Stock Exchange revealed that foreign investors sold nearly $4 billion more in Japanese equities than they purchased during the week ending July 26. In the preceding week, they were also net sellers, offloading approximately $1.5 billion in equities.

River Akira Davis contributed reporting from Tokyo.