Asia Markets Sink as U.S. Recession Fears Spark Mass Risk Aversion
By Wayne Cole
Major share markets in Asia plunged on Monday as concerns over a potential U.S. recession prompted a wave of risk aversion and bets on significant interest rate cuts to bolster growth.
Investors carried over their Friday pessimism, with Nasdaq futures down 1.64% and [Market Name] dropping 1.04%. MSCI's Asia-Pacific shares outside Japan fell 0.8%, while [Market Name] hit seven-month lows with a 6.4% decline.
With Treasury bonds in high demand, 10-year yields reached 3.77%, the lowest since mid-2023. Two-year yields plummeted by 50 basis points last week to 3.85%, potentially inverting the yield curve, a sign historically associated with impending recessions.
The weak July payrolls report led markets to price in a 70% chance that the Federal Reserve will cut rates in September, possibly by a full 50 basis points. Futures suggest a total of 155 basis points in rate cuts for this year, with a similar amount in 2025.
Goldman Sachs analysts raised their 12-month recession odds to 25%, anticipating quarter-point cuts in September, November, and December. JPMorgan was even more bearish, assigning a 50% probability to a U.S. recession and predicting 50 basis point cuts in September and November.
Investors are looking to the ISM non-manufacturing survey for insights on the service sector's employment trends. Earnings reports from companies like Caterpillar, Disney, and Eli Lilly will provide further assessment of consumer and manufacturing health.
The rush to safe-haven assets saw the U.S. dollar decline, with the Swiss franc benefiting the most. The dollar was down against the yen and the euro, while the franc hit six-month highs against the dollar.
Investors are also betting on other major central banks easing monetary policy following the Fed's lead. In commodity markets, gold pulled back, while oil prices bounced amid Middle East conflict concerns.
Overall, these market movements indicate growing fears of a U.S. recession, prompting investors to seek safe-haven assets and anticipate aggressive central bank easing. The implications of these trends could impact investment strategies, currency valuations, and global economic outlooks.