Hello again. After a day of heavy losses, the New York stock exchange has suffered its biggest one-day fall in almost two years.

The global rout that kicked off again in Asia early this morning, and ran through Europe, has sparked fresh losses on Wall Street tonight too.

The S&P 500 fell 3% Monday, the Dow Jones Industrial Average dropped more than 1,000 points, and the Nasdaq composite slid 3.4%.

That followed a 12.4% plunge for Japan’s Nikkei 225, its worst day since 1987, and the UK FTSE 100’s worst day since January.

Here’s the full story:

Danni Hewson, head of financial analysis at AJ Bell, sums up the day:

“Friday’s slump turned into a full-on meltdown following the sun around the globe but instead leaving a chill in its wake. There are plenty of theories about why today was the day which delivered this massive market sell off, but whichever one you subscribe to, you will undoubtedly be talking about the trillions wiped off market valuations for years to come.

For the FTSE 100 there was a tiny silver lining as it managed to clamber back above that psychologically important 8,000 milestone just before the close but only one company, Haleon, managed to end the day out of the sea of red.

The FTSE 250 closed almost 590 points down with five of its members finishing on the front foot as some hardy investors were likely redrawing their positions to take advantage of a spot of bargain buying.

But it was the mega caps that led the sell off, with reports of AI chip delays and Warren Buffett’s remarkably timely sale of a chunk of Berkshire Hathaway’s Apple shares adding to US recession fears and the pricing in of the anticipated flurry of rate cut activity many now think will follow.

It’s hard not to look at the headlines and succumb to panic but corrections happen and looking back since the start of the year the FTSE 350 is still in a better position than it was coming into 2024. Markets fall and they recover, the trick is to ride out the storm whilst picking up a couple of good deals along the way.”

Time for a quick recap….

Global stock markets have tumbled again today, extending a selloff that began last week, as worries about the health of the US economy hit stocks.

Japan’s Nikkei index plunged 12%, its biggest one-day loss since 1987, as last Wednesday’s surprise rise in Japanese interest rates continues to rock the markets.

Analysts warned that the ‘yen carry trade’, in which investors borrowed cheaply in yen and bought higher-yielding assets, was unwinding, triggering margins calls and forced selling.

European stock markets fell sharply too, with London’s FTSE 100 having its worst day since mid-January.

Europe’s Stoxx 600 index has hit its lowest level in six months tonight.

There were heavy early losses on Wall Street, where the Nasdaq initially slumped by 6%. But stocks have staged a small recovery, after economic data showed the US service sector was still expanding.

That helped to pull Wall Street’s fear index back from an early surge.

Money markets are now predicting the US Federal Reserve will cut US interest rates by over a percentage point by the end of this year, with some speculation that the Fed could be forced into an emergency cut.

Philip Shaw of Investec says:

The past three sessions have witnessed major panic in stock markets, prompting investors and analysts to question whether the US economy is heading for a sharp recession or whether the Fed is about to sanction an emergency cut in rates, or both.

Here’s our full report on the market mayhem:

We’ll be back tomorrow with more coverage of the markets… GW

The main European stocks index hit its lowest in over six months tonight, Reuters has spotted.

They explain:

Fears of a slowdown in the world’s largest economy knocked equities globally, with energy and utility stocks at the forefront of a broad-based market slide.

The STOXX 600 closed 2.2% lower, but off the day’s low. The continent-wide index logged its steepest three-day decline since June 2022, closing below the key 500-point mark for a second day.

Encouragingly, Wall Street’s ‘fear index’ has subsided from its earlier peak.

The CBOE VIX index is now back at 33.6 points, which still shows a sharp increase today of 43%, but is rather lower than the four-year high of 61.65 points hit earlier today.

Newsflash: The UK stock market has posted its biggest one-day drop in months.

The FTSE 100 index has been hit hard today amid the global share selloff.

And while it has recovered from its earlier lows, the blue-chip stock inded has closed down 166.5 points, or 2% lower, at 8008 points.

That takes the FTSE 100 to its lowest closing level since mid-April.

Engineering firm Melrose led the fallers, down 6.3%, followed by water utility Severn Trent (-5.8%), and technology investor Scottish Mortgage Investment Trust (-5.5%).

Every stock on the FTSE 100 fell, apart from consumer goods maker Haleon which gained 0.4%.

European stock markets also finished deep in the red, with the pan-European Stoxx 600 index down 2.2% at the close.

Finally, some good news from the US economy!

Activity in the US services sector rose “markedly again” last month, according to the latest health check from S&P Global.

Its US service sector PMI index (a measure of activity) has come in at 55.0 for July, down a little from June’s 55.3 but still comfortably in levels that show growth.

US service sector companies reported that an increase in new orders led to higher output last month, and also spurred the second successive rise in employment.

This suggests the US economy is still growing at a fairly solid pace, and could calm worries that it is sliding into recession…

Chris Williamson, chief business economist at S&P Global Market Intelligence, says:

The PMI surveys bring encouraging news of a welcome combination of solid economic growth and cooler selling price inflation in July.

Another strong expansion of business activity in the service sector, which over the past two months has enjoyed its best growth spell for over two years, contrasts with the deteriorating picture seen in the manufacturing sector, where output came close to stalling in July.

While manufacturers are reporting reduced demand for goods, this in part reflects a further switching of spending from consumers towards services such as travel and recreation. However, healthcare and financial services are also reporting buoyant growth, fueling a wide divergence between the manufacturing and service economies.

Thanks to the relatively larger size of the service sector, the July PMI surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualised 2.2% pace.

Snack maker Kellanova is defying the market rout – its shares are soaring, after reports that Mars is considering a takeover bid.

Kellanova, the firm behind tasty delights such as Cheez-It and Pringles, has caught the eye of Mars, Reuters reported yesterday, adding:

A deal would be one of the biggest ever in the packaged food sector, given Kellanova’s market value of about $27 billion including debt, and test the appetite of regulators to allow consolidation in the sector.

Kellanova’s shares have jumped around 17% in early trading – an impressure rally, given the wider market rout.

The market rout has now reached Wall Street, which just opened for trading.

The technology-focused Nasdaq Composite tumbled 6.2%, or 1,038.07 points, my colleague Callum Jones reports from New York.

The benchmark S&P 500 dropped 4.2%, or 223.29 points.

The Dow Jones industrial average fell 2.8%, or 1,119.01 points.

Concerns about the strength of the US economy, and the threat of a recession, are at the heart of this sell-off. A dismal jobs report on Friday heightened fears of a slowdown across the world’s largest economy.

But the Nasdaq has also been hit by the sharp decline of Apple, the world’s largest company. Warren Buffett’s investment firm, Berkshire Hathaway, announced it halved its vast stake this weekend – knocking the tech giant’s $3trn market valuation, and rattling the wider Nasdaq.

Apple’s shares are down 6% in early trading.

As we noted earlier, the VIX - Wall Street’s ‘fear index’ - is trading at levels not seen since the onset of the Covid-19 pandemic four years ago.

Chicago Federal Reserve Bank president Austan Goolsbee has told CNBC tht the US economy doesn’t appear to be entering recession, even though Friday’s jobs data was worse than expected.

Goolsbee added that Fed policymakers need to be forward-looking in their decisions, explaining:

“You only want to be that restrictive if you think there’s fear of overheating. These data, to me, does not look like overheating.”

Now this is worrying.

Wall Street’s ‘fear index’, the VIX, has surged to its highest level since the Covid-19 pandemic hit the global economy over four years ago.

The volatility index is up around 160% today at 61.65, a gain of 38.26 points.

Reuters’ Jamie McGeever points out that the Vix is higher than in previous market wobbles, such as the 1997 Asian financial crisis, the failure of Long-Term Capital Management in 1998, or the dotcom crash….

Wall Street futures have sunk deeper into the red!

The global market rout will soon hit the New York stock exchange, as worries about US growth, and the surging yen, hit shares worldwide.

The Dow Jones industrial average of 30 large US companies is on track to plunge 930 points when trading begins in just over an hour’s time, a fall of 2.3%, to around 38,948 points.

The tech-focused Nasdaq index is also heading for a 900+ point plunge. That would sent it slumping by around 5% – a significant slump – to around 17,616 points, data on Marketwatch shows.

The S&P 500 index is on track to fall around 4%.

The news last weekend that billionaire investor Warren Buffett has slashed its stake in iPhone maker Apple in half, amid a stock selloff, is also weighing on tech stocks.

Gold is meant to be a safe-haven in troubled times, but precious metals prices are actually falling today too.

Spor gold is currently down 2% at $2,393 per ounce, while silver has fallen over 5% to $26.90 per ounce.

Gold has climbed over the last two years, as investors sought protection from inflation.

Today, though, investors may be cashing profits – or simply selling up to cover losses elswhere in the market.

Adrian Ash, Director of Research at BullionVault, says:

Gold isn’t immune to Black Monday ‘24, whip-sawing over $100 per ounce so far today and losing 5% in Yen terms as global stock markets slump. There’s some truth in the old chestnut that ‘All correlations go to 1 in a crash’.

Gold set a new record weekly close in London’s bullion market on Friday, but with traders needing to liquidate winning positions to cover margin calls on other assets, gold’s volatility signals the level of panic hitting equity markets.

Saxo’s chief investment strategist, Peter Garnry, identifies five factors behind the stock market selloff:

1. Recession fear as the “Sahm Rule” is triggered. The “Sahm Rule” is triggered when the 3-month average US unemployment rate is up more than 0.5% from its low over the previous 12 months. This indicator has correctly identified every recession since WWII, so its triggering on Friday planted the seeds of recession fear that led to declines in equities.
   

2. AI profit taking after massive bull market. The AI and semiconductor theme had been one of the strongest themes over the past year. When there is a turnaround in sentiment the pockets with the most momentum are always hit the most.
   

3. Japan’s surprise rate hike upsetting funding markets. The Japanese central bank has kept its policy rate much lower than any other central bank throughout this entire cycle causing the Japanese yen (JPY) to consistently decline. As a result JPY has been a key funding current for leverage in financial markets. The central bank’s surprise decision to hike the policy rate last week while making hawkish comments have caused turmoil in JPY and funding markets.
   

4. 1-day options and the “divergence trade”. The US options market has become enormous and especially the 1-day options market has become a dominant force. In addition, Wall Street has been playing an options game called “divergence trade” which involved selling VIX futures and buying call options on technology stocks. When the VIX Index explodes higher this trade has to be unwound quickly. It adds to the volatility and increases market moves.
   

5. Historical equity market concentration. We have written a lot about this topic. In late June the US equity market reached its highest market concentration since the 1930s meaning that the equity market weighting is dominated by a small group of stocks. This increases the risk in the equity market because the diversification is lower and thus more fragile to a change in sentiment as we have seen today.

The dominant theme in the markets is the unwinding of various carry trades in currencies such as the yen, says Fawad Razaqzada, market analyst at City Index and FOREX.com.

As flagged earlier, “carry trade” is a strategy where traders borrow money at low-interest rates and invest it in higher-yielding assets. It worked well for Japan’s yen, untill the BoJ raised interest rates last week.

Razaqzada says:

It’s been a rough ride for global risk assets lately, and the turbulence shows no sign of easing at the start of this week. Investors are gripped by fears that the Federal Reserve has waited too long to pivot on its policy, especially in light of Friday’s disappointing US jobs data and a slew of other weak economic indicators pointing toward a looming recession.

It appears as though Friday’s soft jobs report was a game-changer for US rates markets. Short-term US yields took a nosedive as the market consensus shifted dramatically, now expecting the Fed to slash rates significantly this year. We’re talking about a massive shift: the market is now pricing in around 120 basis points of Fed rate cuts before year-end, all driven by recession fears. No more hoping for a smooth, orderly adjustment in Fed policy. In fact, investors are now bracing for a 50-basis point cut in September, double the 25 basis points they were anticipating before.

Falling bond yields have flipped the script on low-yielding currencies. After a tough first half of the year, these currencies are now on the rise. With the Fed and other major central banks expected to lower interest rates, the US dollar and other high-beta currencies are being dumped in favour of the Japanese yen, Swiss franc, and Chinese renminbi. The yen, in particular, is getting an extra boost from last week’s hawkish BOJ rate decision, adding to its newfound strength.

Just in: the eurozone economy stalled in July as demand for goods and services deteriorated.

That’s according to the latest poll of purchasing managers, by data firm S&P Global.

It’s eurozone Composite PMI Output Index has fallen to a five-month low of 50.2, a level which shows activity barely rose last month (50 is the cut-off between expansion and contraction).

Growth in the services sector slowed, with companies reporting a weakening in new business.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, says:

“The eurozone’s economy is growing at a snail’s pace in July. Sector-wise, services is not picking up speed like it did earlier in the year, while the industrial slump has continued unabated. Because of this, the HCOB Composite Output PMI is just hovering above the expansion line.

So, while the second half of the year started off pretty weak, the PMIs and the official numbers for economic growth in the second quarter were surprisingly good. Given this situation, our 0.7% growth forecast for the year is still conservative. “You cannot miss the slowdown in the service sector. The PMI has dropped for three months straight to 51.9, companies have been more hesitant about hiring, and new business is barely ticking up.

The extraordinary effects from the European Football Championships in Germany, the Olympics in France, and Taylor Swift’s concert tour in Europe are winding down too. So, the service sector probably won’t give us much of a boost in the second half of the year.

City investors are pricing in more cuts to UK interest rates this year.

Interest rate futures are now fully pricing two quarter-point BoE rate cuts by its December meeting.

At the end of last week, only one cut was fully priced in before the end of 2024 (although a second cut was already seen as likely).

European bank stocks are being hit hard this morning, pushing the Stoxx Europe 600 Banks Index down by 4.6% in early trading, to its lowest since March.

Updated: In Italy, Unicredit has dropped by around 7% and Intesa Sanpaolo is down 6.5%.

Germany’s Deutsche Bank has dropped by 5.7%

The London stock market has taken a plunge at the start of trading in the City.

The FTSE 100 index of blue-chip shares has dropped by 163 points, or 2%, to 8011 points, its lowest level since April.

Rolls-Royce, the UK engineering firm, are the top faller on the FTSE 100, down 7.3%, followed by Barclays (-5.6%).

Worries about economic growth are hitting the oil price too.

Brent crude, the international benchmark, has dropped by 1.1% or nearly a dollar per barrel to $75.91/barrel, the lowest since January.

Panic selling is hitting the financial markets today, reports Kyle Rodda, senior financial market analyst at capital.com.

In a note this morning, he explains:

The markets are in meltdown and it’s a sea of red across the world. There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth. The move has triggered a sell-off in the US Dollar and a rally in the Yen, the latter of which was boosted by the BOJ’s decision to tighten policy last week and a subsequent short-squeeze.

The rapid move in the Yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade—investors had leveraged up by borrowing in Yen to buy other assets, chiefly US tech stocks. We are basically seeing a mass deleveraging as investors sell assets to fund their losses.

The rapidity of the move has caught a lot of investors off guard; there’s a lot of panic selling now, which is what causes these non-linear reactions in asset prices to pretty straightforward fundamental dynamics.

Japan’s yen is continuing to strengthen – which is hurting speculators and fuelling the selloff.

The yen has hit its highest level against the US dollar since the start of this year, at 142.3 yen to the dollar. Last week it traded around 154¥/$, before the Bank of Japan surprised markets by raising Japan’s interest rates last Wednesday.

That has destabilised the “carry trade” — where an investor borrows in a currency with low interest rates, such as the yen, and reinvests the proceeds in another currency, or other asset, with a higher rate of return.

That carry trade has been lucrative, as the BoJ had been reluctant to lift borrowing costs due to Japan’s weak economy.

But it’s now unwinding, fast….

Ouch ouch ouch.

Trading has just ended for the day in Tokyo, and Japan’s Nikkei 225 share index has suffered a fall of over 12%.

Japan’s benchmark Nikkei average closed down 12.40% at 31,458.42, a drop of 4,451 points, while the broader Topix shed 12.48% at 2,220.91.

According to Reuters, that’s a record daily points fall for the Nikkei, and the biggest percentage loss since the Black Monday crash of 1987.

Cryptocurrencies are also caught up in the selloff.

Bitcoin has tumbled 15% since Friday night, dropping from around $62,500 to $52,800 this morning.

Ether, used on the Ethereum network, has lost over 20%.

Goldman Sachs economists reckon there’s an increased risk of a US recession.

They have lifted their estimate for the probability of a US recession in the next year to 25% from 15%,

They told clients:

“We continue to see recession risk as limited.”

Goldman argues that the Federal Reserve has plenty of room to cut US interest rates if needed.

Bloomberg explains:

The economists added that they are skeptical the labor market is at risk of deteriorating rapidly in part because job openings indicate demand remains solid and there has been no obvious shock to spark a downturn.

Bets in the futures markets on Friday suggested growing unease about the US economy, says Bob Savage, head of markets strategy and insights at BNY.

Savage told clients in a research note:

Fed fund futures reflected pricing an over-70% chance of a 50-basis point cut at the central bank’s September meeting, compared to 22% the day before

Geopolitical worries will also be a theme this week, he adds:

The ongoing tensions between Israel and Iran have left many analysts discussing the risk of escalation and with that the threat to oil supply and ongoing global shipping.

The risk of Ukraine and Russia war continuing without a deal is also in play Increasingly, reports mix the role of Russia and Iran working together

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

Global investors are bracing for fresh volatility after suffering losses last week, as anxiety over the health of the US economy sweeps markets.

Stocks have tumbled in Tokyo again today, where Japan’s Nikkei 225 share index has slumped by almost 10% in late trading – hitting its lowest level since late last year, and triggering circuit breakers designed to stop panic selling.

Other Asia-Pacific markets are also falling, with South Korea’s Kospi down over 8% in afternoon trading, and Australia’s S&P/ASX 200 down 3.5%. Further losses are expected in Europe and on Wall Street today.

Appetite for taking risks has waned, after the tech-focused Nasdaq index sunk into contraction territory on Friday – closing over 10% below its alltime high.

Disappointing US jobs data on Friday added to concerns that the US Federal Reserve may have blundered by not cutting interest rates last week, and might be too late to prevent a recession. The chance of a large reduction in borrowing costs next week has surged.

Last week’s selloff came amid a flurry of key events, including:

• The Bank of Japan surprisingly raising interest rates, prompting the yen to surge.

• A weak US ISM manufacturing report, which showed factory activity contracting last month

• A jump in the number of Americans filing new applications for unemployment benefits, to an 11-month high, followed by….

• …a drop in job creation, according to July’s non-farm payroll

• Underwhelming financial results from major tech companies, which didn’t persuade Wall Street that the huge investments in artificial intelligence were paying off.

The news last weekend that Warren Buffett had cut his stake in Apple may weigh on tech stocks again this week.

Rising tensions in the Middle East hit stock markets yesterday too, as fears grew of a retaliatory Iranian attack on Israel. Saudi Arabia’s benchmark index fell by 2.4% on Sunday, and Egypt’s blue-chip index lost 2.9%.

There’s certainly plenty of fear in the system, as illustrated by Wall Street’s “fear gauge” – the Vix index of expected US stock market turbulence — which jumped last week.

As Stephen Innes, managing partner at SPI Asset Management, puts it:

It’s a bit like watching a slow-motion replay of a spill in a crowded market: you know there’s room for more chaos, but you’re just not sure how much more the aisles can take before everything’s on the floor.

How did the financial snowball start barreling downhill? It kicked off with the Yen bulking up—a move we hinted at positioning for just before the Bank of Japan (BOJ) decided to hike. This beefier Yen set off a domino effect, triggering a global unwinding of carry trades that nudged the VIX into action. Ah, the VIX, our merciless watchdog, always ready to sound the alarm.

From there, the market turmoil morphed into a full-on avalanche, propelled by not one but two vector bear assaults. And if you throw in the dismal high-tech earnings misses into the mix—well, that’s strike three. Each factor compounded the others, turning a manageable slide into a frenzied tumble down the financial slopes.

Today we will get a flurry of data from the services sector, which will show how the UK, eurozone and US economies are faring.

The agenda

• 7am BST: Russia’s service sector PMI for July

• 9am BST: Eurozone service sector PMI for July

• 9.30am BST: UK service sector PMI for July

• 3pm BST: US service sector PMI for July