Wall Street looks set to start the week with hefty losses on concerns that the U.S. economy is slowing down rapidly. Japan's Nikkei index entered bear market territory earlier in the session, and bitcoin, the world's favorite digital currency slumped as risk appetite drained away. 

1. Futures slump on recession concerns

U.S. stock futures fell sharply Monday, with the tech sector hit hard as a soft nonfarm payrolls report ramped up concerns that the U.S. economy was heading towards recession. 

By 04:15 ET (08:15 GMT), the Dow futures contract was 590 points, or 1.5%, lower, S&P 500 futures dropped 106 points, or 2%, and Nasdaq 100 futures fell by 595 points, or 3.2%.

The Wall Street indices suffered a brutal week last week, with the tech-heavy Nasdaq Composite recording a third straight losing week and is now down more than 10% from a record set last month, in correction territory.

The S&P 500 also posted a third straight losing week, while the Dow Jones Industrial Average, which had been outperforming, snapped a four-week win streak, falling 2%.

This selling is set to continue this week as investors fretted that a worryingly weak July payrolls report indicated that the Federal Reserve has kept interest rates at elevated levels for too long, dragging the world’s largest economy into recession.

"We have increased our 12-month recession odds by 10pp to 25%," said analysts at Goldman Sachs in a note, though they thought the danger was limited by the sheer scope the Fed had to ease policy.

Markets now price in a 78% chance the Federal Reserve will not only cut rates in September, but ease by a full 50 basis points. 

Economic data due out Monday include the July ISM Services PMI, while San Francisco Fed President Mary Daly will be speaking at a conference after the close Monday.

2. Nikkei enters bear market territory 

The likely selloff on Wall Street Monday has already been reflected in sharp losses in Europe, with the pan-European benchmark Stoxx 600 index falling over 2% at the open.

However, this weakness is nothing when compared with the 13% drop seen in the Nikkei 225 index in Japan earlier in the session, its worst day since the "Black Monday" of 1987.

The index has now fallen more than 20% from the all-time high on July 11, entering bear market territory, and has erased all its gains so far this year.

UBS’s Kelvin Tay warned investors about using these hefty losses to return to the Japanese market, sayings on CNBC that going into the Japanese market at this moment is akin to catching “a falling knife.”

“The only reason why the Japanese market is up so strongly in the last two years is because the Japanese yen has been very, very weak. Once it reverses, you’ve got to get out right,” Tay said.

The yen has strengthened sharply since the Bank of Japan raised interest rates, helped before that by government intervention, after falling to a 38-year low against the U.S. dollar in June.

A stronger yen pressurizes Japanese stock markets as it erodes the competitiveness of the important export-oriented firms.

3. Bitcoin drops to five-month low

The price of Bitcoin (BitfinexUSD), the world’s biggest cryptocurrency, slumped Monday, falling to a more than five-month low as growing fears of a U.S. economic slowdown battered risk appetite. 

At 04:15 ET, Bitcoin fell 12% to $53,008, dropping to its weakest level since late-February, largely wiping out a rally sparked by the launch of spot Bitcoin exchange-traded funds in March. 

Bitcoin - along with broader crypto markets - have been tracking steep losses in equity markets since Friday, as a swathe of weak economic readings from the U.S. pushed up concerns over a potential recession.

Led by the drop in bitcoin as well as ether, the second most popular digital currency, Coinglass revealed over $800 million has been liquidated from the crypto space in the last 24 hours. 

Uncertainty over the outlook for U.S. regulation has also weighed on crypto markets, especially as recent polling data saw Democratic frontrunner Kamala Harris catching up with Republican nominee Donald Trump.

4. Mars casts its eye over Kellanova - Reuters

Private packaged food giant Mars is considering a potential acquisition of smaller rival Kellanova (NYSE:K), according to a report from Reuters, released on Sunday. 

Such a deal could be one of the biggest in the food industry, given Kellanova has a market capitalization of about $27 billion, although such a move, if it was to occur, would likely attract antitrust scrutiny given that both firms control several major brands in the packaged foods sector.

Kellanova was spun off from WK Kellogg (NYSE:K) last October, and although its shares are up over 12% so far this year they are still seen trading at a discount to peers such as Hershey (NYSE:HSY) and Mondelez (NASDAQ:MDLZ). 

Mars is one of the biggest privately-owned companies in the world, and is controlled by the Mars family. 

5. Crude slumps on US slowdown fears

Crude prices fell Monday, trading around eighth-month lows, on mounting concerns of an economic slowdown in the U.S., the world’s largest oil consumer.

By 04:15 ET, the U.S. crude futures (WTI) dropped 1% to $72.81 a barrel, while the Brent contract fell 0.8% to $76.22 a barrel.

Weak U.S. economic data last week has hit sentiment in the oil markets as the prospect of a recession in the world’s largest economy bodes poorly for future demand, even as recent inventory data showed that increased travel demand during the summer season had kept fuel consumption high.

This has added to disappointing growth numbers from top oil importer China and surveys showing weaker manufacturing activity across Asia and Europe, raising concerns of the future oil consumption.

Both benchmarks tumbled more than 3% last week to settle at their lowest since January on Friday. Last week, both contracts marked their fourth straight week of losses, their biggest losing streaks since November.

The crude markets have largely looked past heightened tensions in the Middle East, with Israel and the United States expecting a serious escalation in the region after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for the recent killings of a couple of militant leaders. 

Also of interest is the incoming Tropical Storm Debby, which is expected to strengthen rapidly into a hurricane before making landfall in Florida's Gulf Coast later in the session, the U.S. National Hurricane Center said on Sunday.

Oil major Chevron (NYSE:CVX) said on Sunday that it had removed non-essential personnel from its facilities in the Gulf of Mexico, but production had yet to be impacted.

Source : Investing.com - Aug 5, 2024