Investors lose Rs 10 lakh crore on US recession fears, sending shockwaves through the stock market. US futures plunge further ahead of European trading, signaling a potential market correction. Experts warn of a real risk of a US recession, with global markets experiencing intense selling pressure. Stay informed about these economic developments and gain valuable insights into the implications for investors and the broader economy.
Sources:
https://economictimes.indiatimes.com/markets/stocks/news/bloodbath-on-d-street-investors-lose-rs-10-lakh-crore-on-us-recession-fears/articleshow/112276706.cms
https://www.forexlive.com/news/us-futures-plunge-further-ahead-of-european-trading-20240805/
https://www.moneycontrol.com/news/business/markets/recession-risk-yen-carry-trade-geopolitics-experts-12786908.html
https://www.moneycontrol.com/news/business/markets/recession-risk-yen-carry-trade-geopolitics-experts-12786908.html
Outline:
(00:00:00) Introduction
(00:00:43) Bloodbath on D-Street! Investors lose Rs 10 lakh crore on US recession fears
(00:03:23) US futures plunge further ahead of European trading
(00:05:45) Risk of a US recession real, say experts, second half of 2024 unlikely to be as smooth
(00:08:56) Risk of a US recession real, say experts, second half of 2024 unlikely to be as smooth
Simply Economics
Stock Market Bloodbath, Tech Industry Turmoil, and Global Economic Concerns
Investors lose Rs 10 lakh crore on US recession fears, sending shockwaves through the stock market. US futures plunge further ahead of European trading, signaling a potential market correction. Experts warn of a real risk of a US recession, with global markets experiencing intense selling pressure. Stay informed about these economic developments and gain valuable insights into the implications for investors and the broader economy.Sources:https://economictimes.indiatimes.com/markets/stocks/news/bloodbath-on-d-street-investors-lose-rs-10-lakh-crore-on-us-recession-fears/articleshow/112276706.cmshttps://www.forexlive.com/news/us-futures-plunge-further-ahead-of-european-trading-20240805/https://www.moneycontrol.com/news/business/markets/recession-risk-yen-carry-trade-geopolitics-experts-12786908.htmlhttps://www.moneycontrol.com/news/business/markets/recession-risk-yen-carry-trade-geopolitics-experts-12786908.htmlOutline:(00:00:00) Introduction(00:00:43) Bloodbath on D-Street! Investors lose Rs 10 lakh crore on US recession fears(00:03:23) US futures plunge further ahead of European trading(00:05:45) Risk of a US recession real, say experts, second half of 2024 unlikely to be as smooth(00:08:56) Risk of a US recession real, say experts, second half of 2024 unlikely to be as smooth
- Duration:
- 12m
- Broadcast on:
- 05 Aug 2024
- Audio Format:
- mp3
[MUSIC PLAYING] Good morning, and welcome to Simply Economics. It's Monday, August 5th. On today's show, a bloodbath on D Street as investors loseers 10 lakh crore on US recession fears. US futures plunge further ahead of European trading. Plus, experts warn that the risk of a US recession is real, and the second half of 2024 is unlikely to be as smooth. This coverage and more up next. I'm David, and you're listening to Simply Economics. We start off with some concerning news from the Indian stock markets. The sensex and nifty both fell over 2% today with the market capitalization of all listed companies on the BSE declining by a staggering 17 lakh crore. The India VIX fear gauge surged 59%, seeing its biggest spike since 2015. For more on what's driving this market route, we turn to our correspondent. What factors are weighing on investor sentiment? There are several key factors contributing to today's steep market declines. First and foremost are growing fears of a potential recession in the United States. Data released on Friday showed that US job growth in July slowed more than expected, with non-farm payrolls increasing by just 114,000 well short of estimates. The unemployment rate also rose to 4.3%, nearing a three-year high. This is fueling concerns that the US at economy may be headed for a significant slowdown or even a recession. What about factors beyond the US? Are there other global developments weighing on markets? Absolutely. Another major factor is the unwinding of the yen carry trade. The Bank of Japan recently raised interest rates and reduced bond purchases, causing the yen to appreciate. This has forced many investors to unwind their positions to avoid losses, leading to a sell-off in US tech stocks that is rippling through global markets. Japan's Nicki index, for instance, shed a staggering 13% to hit seven-month lows. There are also rising geopolitical tensions in the Middle East. How might that be impacting market sentiment? Growing tensions between Iran and Israel are definitely concerning investors. The US has warned that Iran and Hezbollah could launch a tax on Israel as early as today, and Israel may authorize preemptive strikes in response. Any escalation or conflict in the oil-rich Middle East risks disrupting global energy supplies and driving prices higher, which would further fuel inflation pressures. So investors are watching those developments very closely. Overvaluation has also been a concern in Indian markets, correct? Especially after the recent run-up? That's right. India's market cap to GDP ratio, known as the Buffett indicator, recently hit a record high of 150%, raising some red flags about frothy valuations, especially in the mid and small cap space. Pockets of the market, like defense and railways, look particularly overheated. So a pullback of this magnitude is not entirely surprising. Many analysts have been warning that Indian equities were due for a correction. Thanks for that insightful breakdown of the key drivers behind today's sell-off in Indian markets. Certainly a lot for investors to digest as they assess the road ahead. Speaking of market turmoil, US stock futures are also in disarray this morning with the tech-heavy NASDAQ index taking the brunt of the sell-off. NASDAQ futures are currently down a staggering 6%, while the Dow Jones industrial average futures are faring slightly better down just over 1%. It appears the recent AI boom has turned into a mini bust, and the pain looks set to deepen. For more on this, we turn to our simply economics correspondent. What's behind this sharp reversal and sentiment? The NASDAQ's meteoric rise over the past year, fueled in large part by the hype around AI and other cutting-edge technologies, appears to have hit a wall. From the lows of 2022 to the peak in July 2024, the NASDAQ surged an astonishing 85%. However, the index has now decisively broken below its 100-day moving average and the trend-line support that had underpinned its rally this year. This suggests a significant shift in market sentiment and the potential for further downside. Given the magnitude of the NASDAQ's previous rally, how much more downside could we potentially see in this correction? Considering the NASDAQ's 85% surge from the 2022 lows to the recent peak, even a 10% to 20% pullback from current levels would be relatively mild in the grand scheme of things. However, that might be exactly what we're staring down the barrel of in the near-term. Market sentiment can be fickle, and the same optimism that propelled the AI and tech rally could quickly turn to pessimism, leading to a more pronounced sell-off. What are some of the key technical levels to watch on the NASDAQ as this correction plays out? The first key level to watch is the 100-day moving average, which the NASDAQ convincingly broke below on Friday. This is often seen as a sign that the short-term trend has turned negative. The next crucial support to keep an eye on is the trend line that had supported the NASDAQ's rally throughout this year. A decisive break below this trend line would be another worrying signal and could open the door to a deeper pullback. As always, we'll be keeping a close eye on the markets as this situation unfolds. Speaking of which, stock markets around the world are under intense selling pressure amid fears that the US Federal Reserve may be late in providing policy support to a feared economic slowdown. Meanwhile, the Japanese Yen's appreciation has quickened since July 31st after the Bank of Japan increased interest rates. Here to provide more insight is our correspondent. What can you tell us about the impact this is having on Japan's markets? Japan's benchmark, Nikkei 225 Index, has now fallen more than 20% from the record highs seen in July. This sharp decline is being driven by a combination of factors, including the surge in the Yen, tighter monetary policy by the Bank of Japan, and a worsening economic outlook in the United States. The strengthening Yen puts pressure on Japanese exporters, as it makes their products more expensive in overseas markets. At the same time, higher interest rates can dampen economic activity and weigh on stock valuations, and it seems this sell-off is not limited to Japan. US stock futures are also indicating a sharply lower open with the tech-heavy NASDAQ particularly hard hit. What about the situation in India? How are markets there reacting? Indian markets are also caught up in this broader global sell-off. The nifty and sensex indices have both fallen below their budget day lows, declining by as much as 3% in line with the weakness across Asian markets. However, it's worth noting that India Inc's earnings have been relatively stable in recent quarters. The concern is that the second half of the 2024 calendar year may not be as smooth given the evolving global economic landscape. Some market watchers, like Tahir Badger of Invesco Mutual Fund, see the possibility of interest rates falling in both the US and India in response to these economic pressures. Can you elaborate on that outlook? Yes, Tahir Badger suggested that he wouldn't be surprised to see India start off with a 2025 basis point rate cut, potentially reaching 50 basis points within six months if the US begins its own rate cutting cycle. Lower interest rates are often used as a tool to stimulate economic growth in the face of slowdowns or recessions. However, central banks have to carefully balance the need to support the economy with the risk of fueling inflation. Despite the market turbulence, it seems Invesco Mutual Fund is maintaining its investment approach for now. What's their perspective on the current situation? Invesco Mutual Fund indicated that they are continuing to look for investment opportunities even in this challenging market environment. Tahir Badger noted that in some overvalued parts of the market, the ongoing correction is actually welcome as it could provide better entry points for investors. However, he also acknowledged that markets may moderate from here as participants become more mindful of the risks to the rally we've seen in recent months. It's certainly a complex and fast moving situation in global markets. We'll continue to monitor developments closely in the coming days and weeks. Speaking of which, global stock markets are under intense selling pressure amid fears that the U.S. Federal Reserve may be late in providing policy support to a feared economic slowdown. Meanwhile, the Japanese yen's appreciation has quickened since July 31st after the Bank of Japan increased interest rates. For more on this, we turn to our correspondent at Simply Economics. What's behind this sharp sell-off in Japan's stock market? Japan's benchmark Nikkei 225 Index has now fallen more than 20% from the record highs seen in July. This steep decline is being driven by a few key factors. First, the surge in the value of the yen is weighing on Japanese stocks as a stronger currency can hurt the competitiveness and profitability of Japan's export-oriented companies. Second, the Bank of Japan's decision to tighten monetary policy by raising rates is also contributing to the bearish sentiment. And third, the worsening economic outlook in the U.S., a key trading partner for Japan, is further fueling concerns about a global slowdown. This sell-off seems to be spilling over into other major markets as well. What are we seeing in the U.S. and India? That's right, the negative sentiment is widespread. In the U.S., benchmark index futures are down sharply with Nasdaq futures showing a cut of over 2.5%. Investors are clearly worried that the Fed may be behind the curve in responding to signs of economic weakness. Meanwhile, in India, both the NFTI and SenseX indexes have slipped below their budget day lows, falling as much as 3% in line with the broader sell-off across Asia. This is, despite the fact that earnings from Indian companies have been relatively stable in recent quarters. So what's the outlook going forward? Are there any signs that this sell-off could abate? Well, some market watchers like Tahir Batcha of Invesco Mutual Fund believe that while Indian corporate earnings have been resilient, the second half of the 2024 calendar year may not be as smooth. He sees the possibility of interest rates falling in both the U.S. and India in the coming months, perhaps starting with a 2025 basis point cut in India that could reach 50 basis points within six months if the U.S. begins its own rate-cutting cycle. However, Batcha notes that Invesco hasn't changed its approach yet and continues to look for attractive investment ideas. He views the correction in some overvalued parts of the market as a welcome development that could provide better entry points, even as investors become more mindful of the risks to the rally. Thanks for that insight and analysis. It's certainly a challenging and fast-moving environment for investors around the world. We'll continue to monitor the situation closely here at Simply Economics. And with that, we wrap up our stories for today. Thanks for listening to Simply Economics. We'll see you back here tomorrow. (gentle music) You You