European stocks faced significant losses on Friday as a global downturn swept through the markets. The regional Stoxx 600 index plummeted 2.48% by 3:17 p.m. London time, dipping below the 500 point mark for the first time since April. This downward trend was exacerbated by weak U.S. economic data, sparking fears of an impending recession. All major bourses were in the red, with technology stocks taking a particularly hard hit, dropping by 6%.
Recent central bank actions have added to the financial turbulence, with the Bank of England cutting interest rates for the first time since 2020. The U.S. Federal Reserve held rates steady, while the Bank of Japan raised them. These conflicting moves have contributed to the uncertainty in the markets, along with shaky corporate earnings and data releases.
The Stoxx 600 suffered its worst session since June as financial services were dragged down by French bank Societe Generale’s downgrade of its outlook. The Bank of England’s decision to lower rates further compounded the issue, resulting in another 4.94% drop in the financial sector on Friday. Banks were hit particularly hard, falling by 4%.
In the U.S., stock markets experienced a significant decline as concerns over the state of the economy grew. Higher than expected weekly initial jobless claims and slowing manufacturing data fueled fears of a recession. The latest report from the U.S. Bureau of Labor Statistics showed slower than anticipated job growth in July, further unsettling investors and causing stock futures to plummet.
Asia-Pacific markets mirrored the downturn, with Japan’s benchmark indexes plummeting by up to 5%. Economic experts like Cedric Chehab, global head of country risk at BMI, highlighted the U.S.-led sell-off that began a week and a half ago. Factors contributing to this market turmoil included the Bank of Japan’s hawkish stance, weak U.S. economic data, and earnings volatility.
Despite the current challenges in the market, Chehab pointed out that seasonal volatility in equity markets between July and October is not uncommon. He emphasized that the recent surge in stock prices, mixed earnings reports, and high valuations have all contributed to the current market instability. Moving forward, uncertainties around monetary policy and global economic conditions will likely continue to impact investor confidence.
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