Global stock markets plunged, and bond prices surged on Monday. Growing concerns about a potential US recession drove investors to flee risky assets and bet on rapid interest rate cuts to support economic growth.
Key Points:
- US stock futures fall sharply: Nasdaq futures down 2.27%, S&P 500 futures drop 1.41%
- Asian markets hit hard: Japan’s Nikkei sheds 5.5%, hitting seven-month lows
- Treasury yields plummet: 10-year yield falls to 3.723%, lowest since mid-2023
- Markets price in aggressive Fed rate cuts: 70% chance of 50 basis point cut in September
The sell-off was particularly severe in Asia, with Japan’s Nikkei index experiencing its largest three session loss since the 2011 financial crisis. The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.0%, while European futures also pointed to a lower open.
Bond markets saw a significant rally, with the 10-year US Treasury note yield dropping to 3.723%, its lowest level since mid-2023. The move reflects growing expectations of aggressive interest rate cuts by the Federal Reserve.
“We have increased our 12-month recession odds by 10 percentage points to 25%,” Goldman Sachs analysts noted, adjusting their forecast to include quarter-point rate cuts in September, November, and December.
JPMorgan took an even more bearish stance, assigning a 50% probability to a US recession and predicting a 50 basis point cut at the September and November Fed meetings.
Currency markets reacted to the shifting interest rate landscape, with the US dollar weakening against major currencies. The euro held firm at $1.0920, while the Japanese yen strengthened to 144.99 against the dollar.
Oil prices rebounded slightly in commodities from eight-month lows, with Brent crude gaining 27 cents to $77.08 a barrel. However, concerns about demand continue to weigh on the market.