Market Meltdown: Nikkei Plunges 13%, Investors Scramble for Safety,Whats Moving Market.

The global stock markets experienced a significant downturn on Monday, driven by growing fears of a potential recession in the United States. This panic triggered a massive sell-off among investors, causing Japanese shares to plunge by a staggering 13%, a level of decline not seen since the 2011 global financial crisis.

The sell-off extended beyond Japan, with Nasdaq futures dropping 4.7%, S&P 500 futures falling 12.4%, EUROSTOXX 50 futures declining 2.1%, and FTSE futures decreasing by 1.2%. The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 4.2%, while Chinese blue chips were somewhat more stable, dipping only 0.5% due to a positive Caixin services PMI report.

In response to the market turmoil, safe-haven currencies like the yen and the Swiss franc surged as investors abandoned risky positions to cover losses elsewhere. The dramatic selling pressure led to circuit breakers being activated across multiple Asian exchanges.

In the bond markets, Japanese 10-year bond yields dropped sharply by 17 basis points to 0.785%, the lowest since April, as the likelihood of another rate hike from the Bank of Japan diminished. Treasury bonds saw increased demand, with 10-year yields falling to 3.723%, the lowest since mid-2023, and two-year yields dropping to 3.807%. The yield curve is at risk of inversion, which has historically been a precursor to recessions.

The recent weak July payrolls report increased market expectations for the Federal Reserve to cut rates, with a 78% chance of a 50 basis point cut in September. Futures markets are pricing in a total of 122 basis points of cuts for the current year, with rates projected to drop to around 3.0% by the end of 2025.

Goldman Sachs analysts raised their 12-month recession probability by 10 percentage points to 25%, expecting quarter-point rate cuts in September, November, and December. They suggested a more significant cut might be necessary if the August employment report is as weak as July’s. JPMorgan analysts were more pessimistic, assigning a 50% probability to a U.S. recession and predicting 50 basis point cuts in both September and November.

Investors are closely watching the upcoming ISM non-manufacturing survey and earnings reports from major companies like Caterpillar, Walt Disney, and Eli Lilly for further insights into economic conditions. The drop in Treasury yields overshadowed the U.S. dollar’s safe-haven appeal, causing it to decline 0.4% against a basket of major currencies. The yen gained 2.2% against the dollar, while the euro dropped 1.9% to 156.35 yen but remained steady at $1.0934 against the dollar. The Swiss franc benefited from the flight to safety, with the dollar falling 0.9% to a six-month low of 0.8485 francs.

In commodities, gold prices rose to $2,456 an ounce as investors sought safety. Oil prices initially increased due to concerns about the Middle East conflict but later fell on worries about global demand, with Brent crude slipping 13 cents to $76.68 per barrel and U.S. crude dropping 22 cents to $73.30 per barrel.