Global Stocks Plunge, Bond Prices Rally as US Data Spooks

A sign for ‘Jobs’ is displayed outside a business in Los Angeles, California, USA, 02 August 2024. EPA/ALLISON DINNER
A sign for ‘Jobs’ is displayed outside a business in Los Angeles, California, USA, 02 August 2024. EPA/ALLISON DINNER
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Global Stocks Plunge, Bond Prices Rally as US Data Spooks

A sign for ‘Jobs’ is displayed outside a business in Los Angeles, California, USA, 02 August 2024. EPA/ALLISON DINNER
A sign for ‘Jobs’ is displayed outside a business in Los Angeles, California, USA, 02 August 2024. EPA/ALLISON DINNER

Surprisingly weak US employment data on Friday stoked fears of a recession ahead, prompting investors to dump stocks and turn to safe-haven bonds, Reuters reported.

Treasury prices surged, sending yields to multi-month lows.
Oil price benchmarks fell by more than $3 per barrel at their session lows. The US dollar index dropped over 1% to its weakest since March.

Richly valued technology firms bore much of the pain, and an index of European bank stocks headed for its largest weekly decline in 17 months on soft earnings.

The VIX stock market volatility measure, dubbed Wall Street's fear gauge, surged over 40%.

Friday's US jobs report showed job growth slowed more than expected in July and unemployment increased to 4.3%, pointing to possible weakness in the labor market and greater vulnerability to recession.

Markets were already rattled by downbeat earnings updates from Amazon and Intel and Thursday's softer-than-expected US factory activity survey in addition to the monthly US non-farm payrolls report, which showed job growth slumped to 114,000 new hires in July from 179,000 in June.

The data raised expectations of multiple rate cuts by the Federal Reserve this year, which just this week opted to keep rates unchanged, Reuters reported.
"The jobs data are signaling substantial further progress that the Federal Reserve made a policy error by not reducing the fed funds rate this week," said Jamie Cox, managing partner for Harris Financial Group in Richmond, Virginia.

"It’s very possible the Fed alters its inter-meeting communications on the balance of risks to remove all doubt about a September rate cut."

With thin summer trading likely exaggerating moves, a slump that began in Asia with a 5.8% drop for Japan's Nikkei, its biggest daily fall since March 2020 during the COVID-19 crisis, rippled through Europe and headed for Wall Street.

MSCI's gauge of stocks across the globe fell 16.09 points, or 2.00%, to 787.31.

The Nasdaq Composite lost 417.98 points, or 2.43%, to 16,776.16. The index has fallen more than 10% from its July closing high, confirming it is in a correction after concerns grew about expensive valuations in a weakening economy.

The Dow Jones Industrial Average fell 610.71 points, or 1.51%, to 39,737.26, the S&P 500 lost 100.12 points.

Europe's STOXX 600 fell close to 3%, with financials and technology the worst hit.
Emerging market stocks fell 24.30 points, or 2.23%, to 1,063.50.
MSCI's broadest index of Asia-Pacific shares outside Japan closed 2.48% lower 2.48%, at 553.72, while Japan's Nikkei fell 2,216.63 points, or 5.81%, to 35,909.70.
The Fed has kept benchmark borrowing costs at a 23-year high of 5.25%-5.50% for a year, and some analysts believe the world's most influential central bank may have kept monetary policy tight for too long, risking a recession.
Money markets on Friday rushed to price a 70% chance of the Fed, which was already widely expected to cut rates from September, implementing a jumbo 50 basis points cut next month to insure against a downturn.
The "employment report flashes a warning signal that this economy does have the ability to turn rather quickly," said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management in Minneapolis.
"Ultimately, today’s employment data should embolden the committee to cut policy by more than 25 basis points at the next meeting."

RUSH AWAY FROM TECH, TO SAFE HAVENS
Shares in US chipmaker Intel tumbled to a more than 11-year low and finished down over 26%, after suspending its dividend and announcing hefty job cuts alongside underwhelming earnings forecasts.

Artificial intelligence chipmaker Nvidia, one of the biggest contributors to the tech rally, dropped 1.8%
Up more than 700% since January 2023, Nvidia has left many asset managers with an outsized exposure to the fortunes of this single stock.
Safe-haven buying went full throttle, with government debt, gold and currencies traditionally all rallying. They are assets viewed as likely to hold value during market chaos.

The yield on benchmark US 10-year notes fell 18 basis points to 3.798%.
The 2-year note yield, which typically moves in step with interest rate expectations, fell 28.5 basis points to 3.8798%.
In foreign exchange markets, the yen added nearly 2%, extending a rapid bounceback after the Bank of Japan raised interest rates to levels unseen in 15 years.
In commodities, spot gold lost 0.37% to $2,436.31 an ounce and US gold futures settled 0.4% lower to $2,4769.8.
Oil prices took a hit on the growth worries, with global benchmark Brent futures settled down $2.71, or 3.41%, to $76.81 a barrel. US West Texas Intermediate crude futures finished down $2.79, or 3.66%, at $73.52.



US Locks in Steep Tariff Hikes on Chinese Imports

Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
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US Locks in Steep Tariff Hikes on Chinese Imports

Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)
Stacked containers and cranes are shown at the Port of Los Angeles in Los Angeles, California (AFP)

The Biden administration on Friday locked in steep tariff hikes on Chinese imports, including a 100% duty on electric vehicles, to strengthen protections for strategic domestic industries from China's state-driven excess production capacity.

The US Trade Representative's office told Reuters that many of the tariffs, including a 100% duty on Chinese EVs, 50% on solar cells and 25% on steel, aluminium, EV batteries and key minerals, would go into effect on Sep 27.

The USTR determination showed a 50% duty on Chinese semiconductors, which now include two new categories - polysilicon used in solar panels and silicon wafers - are due to start in 2025.

Adjustments to the punitive “Section 301” tariffs on $18 billion worth of goods announced in May by President Joe Biden were minimal and disregarded auto industry pleas for lower tariffs on graphite and critical minerals needed for EV battery production because they are still too dependent on Chinese supplies.

USTR left unchanged the tariff increase to 25% from zero on lithium-ion batteries, minerals and components, with the increase for batteries for EVs taking effect Sep 27 and those for all other devices, including laptops and cell phones, on Jan 1, 2026.

Lael Brainard, the top White House economic adviser, told Reuters that the decision was made to ensure that the US EV industry diversifies away from China's dominant supply chain.

She said such “tough, targeted” tariffs are needed to counteract China's state-driven subsidies and technology transfer policies that have led to over-investment and excess production capacity.

But Washington is investing hundreds of billions of dollars worth of its own tax subsidies to develop domestic EV, solar and semiconductor sectors.

“The 100% tariff on electric vehicles here does reflect the very significant unfair cost advantage that Chinese electric vehicles in particular are using to dominate car markets at a breathtaking pace in other parts of the world,” Brainard said.

China has vowed retaliation against the “bullying” tariff hikes and argued that its EV industry's success is due to innovation, not government support.

The higher US tariffs take effect as Vice President Kamala Harris and former President Donald Trump are both courting voters in auto and steel producing states, trying to position themselves as tough on China ahead of the November presidential election.

Trump has vowed to impose 60% tariffs on all Chinese imports.

The European Union and Canada also have announced new import tariffs on Chinese EVs, the latter matching the 100% US duties.

The final tariff decision does provide some temporary relief for US port operators who were facing a new 25% tariff on massive ship-to-shore cranes, an industry that China dominates with no US producers.

The duty would add millions of dollars to the cost of each crane.

USTR said it will allow exclusions from the tariffs for any Chinese port cranes that were ordered prior to the May 14 initial tariff announcements, as long as they are delivered by May 14, 2026.

USTR raised tariffs to 50% on medical face masks and surgical gloves, from an initially proposed 2%, but delayed their start to allow a shift to non-Chinese suppliers.

The planned duty on Chinese syringes, which were in short supply during the COVID-19 pandemic, will immediately rise to 100% from a previously planned 50%, but USTR will allow a temporary exclusion for enteral syringes, used to feed infants, for a year.

The agency also said it will consider requests for tariff exclusions for five Chinese industrial machinery categories, including those for machinery for purifying or filtering liquids, industrial robots and printing machinery.

It will allow tariff exclusions for Chinese solar wafer and cell manufacturing equipment, but not for equipment used to make full solar modules.