- Sell-off on global markets over worries about growth prospects.
- FTSE 100 set for another downbeat session at the start of September.
- S&P 500 falls 2.2% while the Nikkei dives 4.2% .
- Volatility sparked after US factory activity contracted again, according to ISM Manufacturing PMI.
- Chinese services industry snapshot also disappoints, showing order growth easing.
- Tech stocks led by Nvidia are among the biggest fallers amid concerns about the knock-on effect on future AI spending.
- Brent Crude hits the lowest level since December 2023 on concerns about demand outlook.
Susannah Streeter, head of money and markets, Hargreaves Lansdown
‘’Fresh worries about the health of the global economy have gripped markets, with the FTSE 100 far from immune given the international leaning of the index. London-listed stocks are set for another downbeat session, after deep concerns rippled out from Wall Street over the risks of an American recession.
Although the S&P 500 and FTSE 100 are still not far away from record highs, there is uncertainty creeping in about the prospects ahead. There could be an element of post-labour day holiday blues at work, but it appears concerns were prompted by weaker than expected US manufacturing data, highlighting the ongoing damage wrought on orders and output by high interest rates. These were prompted by much weaker than expected US manufacturing data, highlighting the ongoing damage wrought on orders and output by high interest rates. A significant loss of power in the US economy, combined with China’s ongoing struggles, has sparked nervousness about the global growth outlook. The latest snapshot on the services industry from China, the Caixin PMI numbers disappointed, with new order growth easing off, which has added to the pessimism
Investors appear to be teetering on the brink of AI apathy. Concerns are growing that the much-hyped benefits of artificial intelligence powered products and services aren’t yet showing up in a big enough way to justify the huge sums being poured into the technology. A sharper downturn for the mighty US economy may lead to more firms battening down the hatches and rethinking their capital expenditure plans in support of AI. This is causing a rethink about the scale of future revenue streams, knocking valuations. Although clearly this tech juggernaut has much further to run, the speed at which it’s going to go is being questioned. The biggest wobble shook chip darling Nvidia, which had already disappointed by not shattering expectations by its last earnings report. The stock dived almost 10%, but is still up 124% year to date.
Although the last big wobble in late July and early August was followed by a rebound, with September historically the worst month for stock performance, it’s ‘hold on to your hats’ time, with more volatility expected. This fresh wave of uncertainty is unlikely to retreat before the monthly jobs’ numbers on Friday. Hirings, in the non-farm payrolls report, are expected to come in around 162,000 jobs for August, but if they are significantly lower than expected, it will do little to calm fears that a recession could be looming. Up to one percentage point of cuts from the Fed by the end of the year are currently being priced in by financial markets, and if further weak data comes through, a big bazooka cut of 50 basis points looks more likely. A better-than-expected number would lead to a reassessment of the pace of rate cuts, which may also hurt sentiment for some sectors, given how much high borrowing costs have been weighing on smaller companies for example, or infrastructure and real estate firms. If the data shows the solid labour market is weakening in a moderate fashion but not shrinking sharply, it may help calm sentiment.
Given the current worries swirling about global growth and the demand for energy, it’s not surprising that oil prices are trading lower. The benchmark Brent Crude has hit the lowest level since last December, heading towards $73 a barrel. Speculation is also continuing about eight leading OPEC+ members easing off their voluntary production cuts and turning the taps on more fully in October. ‘’
