Global Stock Market Turmoil Amid Recession Fears

Global stock markets have experienced a significant sell-off as fears mount that the US is heading towards a recession within the next eight to twelve months.

The Australian stock market plummeted by $59 billion, or 2.11 percent, in a single trading day, marking its worst performance since March 2023. Major banks were heavily impacted, with National Bank suffering the most, dropping 4.1 percent to $36.50. Commonwealth Bank fell 2.8 percent to $132.46, Westpac declined 2.5 percent to $28.98, and ANZ decreased 1.8 percent to $28.71.

Domino’s Pizza also took a substantial hit, losing $300 million in value as its stock price fell by 9 percent to close at $29.56.

Earlier in the week, there had been optimism for the Australian economy due to the release of better-than-expected inflation data. The consumer price index (CPI) rose by 1 percent in the second quarter of 2024, bringing annual headline inflation to 3.8 percent, up from 3.6 percent in the previous quarter. This reduced the likelihood of an interest rate hike next week.

Although the Australian Bureau of Statistics’ data puts inflation above the Reserve Bank of Australia’s (RBA) target range of 2 to 3 percent, the RBA hopes to achieve this target by the end of 2025. The RBA will consider this data when it meets on Monday and Tuesday to decide whether to adjust the official cash rate. Treasurer Jim Chalmers welcomed the data, stating that it showed inflation was moderating and aligned with RBA forecasts.

Initially, the stock market responded positively to the news on Wednesday, but sentiment quickly shifted, leading to today’s significant sell-off. This follows a similar market reaction on Wall Street on Thursday, driven by concerns over a potential global economic slowdown.

“There was nowhere to hide overnight as dour economic data fuelled hard landing fears, sending US equity indices and bond yields lower, with chip stocks again a punching bag,” IG market analyst Tony Sycamore said.

US stocks tumbled after weak manufacturing data triggered recession fears. European stocks also slumped due to disappointing bank earnings. Although US equities had risen earlier in the day, Federal Reserve Chair Jerome Powell’s hints at a possible September interest rate cut were overshadowed by the Institute for Supply Management’s manufacturing index, which fell to 46.8 percent in July. This was lower than the previous month and below analyst expectations.

Peter Cardillo of Spartan Capital noted, “The market might be beginning to fear that the economy is slowing to the point where we might be looking at a recession eight to twelve months from now.” He also pointed out that jobless claims exceeded estimates.

All three major US indices closed lower, with the Nasdaq Composite Index falling the most at 2.3 percent. The market awaits another key US economic data point on Friday with the release of monthly jobs data.

In Europe, the Bank of England cut its main interest rate for the first time since the Covid-19 pandemic, reducing borrowing costs by a quarter-point to 5.0 percent. This decision weakened the pound and did not prevent London stocks from falling, as hotter-than-expected eurozone inflation raised doubts about the European Central Bank’s potential interest rate cut in September.

Frankfurt and Paris stock markets both fell by more than 2 percent. Indosuez asset manager Adrien Roure noted high volatility in European trading, influenced by company results, particularly in the banking sector. French bank Societe Generale’s shares dropped 8.9 percent after it cut its earnings guidance.

British banks HSBC, Lloyds, and Barclays saw their shares fall by 6.9 percent, 5.3 percent, and 4.6 percent, respectively. In Italy, UniCredit fell 5.7 percent, and Intesa Sanpaolo shed 3.9 percent. Spanish banks Banco de Sabadell, BBVA, and Santander also experienced declines of 5.6 percent, 5.0 percent, and 4.2 percent, respectively.

Oil prices retreated after a previous rally, with analysts viewing rising tensions in the Middle East as unlikely to affect crude market movements.