The sharp drop seen this Monday (5) in stock indexes around the world reflects fears among investors of an economic recession in the United States, where the Federal Reserve (Fed) may be forced to ease its monetary policy, cutting the basic interest rate on an emergency basis.
In Brazil, the Ibovespa, the main index of the São Paulo stock exchange, fell 2.2% at the start of trading, but by midday, it was down 1.18%. In the long term, market analysts are uncertain about the possible consequences of the scenario, but warn of the possibility of an even greater devaluation of the real against the dollar.
The market’s bad mood is partly due to the release, on Friday (3), of employment data in the United States shortly after the decision by the Fed, the North American central bank, to maintain the interest rate between 5.25% and 5.5% per year, the highest level since July 2023.
The announcement that 114,000 new jobs were created in July disappointed investors, who were expecting a figure closer to 185,000. The difference was initially interpreted by some analysts as a sign of the start of a rate-cutting cycle starting at the Fed’s next regular meeting, on September 14 and 15.
But the same numbers also suggest a slowdown in the U.S. economy, suggesting the Fed may have delayed cutting interest rates for too long. Risk aversion spread across markets on Monday, sending stock prices of companies around the world lower.
Sharp stock market crash began in Japan and spread across the world
The Tokyo Stock Exchange’s Nikkei 225 index ended trading with a record low of 12.4 percent. The broader Topix index fell 12.23 percent. Japan’s results were influenced by the central bank’s decision last week to raise interest rates for the second time in 17 years, from a range of 0 percent to 0.1 percent.
The volatility on the Japanese stock exchange spread to other markets. In South Korea, the Kospi index closed down 8.77%. The Taiex, which tracks Taiwanese stocks, plummeted 8.35%, while the STI, on the Singapore Stock Exchange, fell 4.07%. In China, the CSI 1000, which tracks the 1,000 largest companies on the Shanghai Stock Exchange, fell 2.73%.
“It seems to be a combination of factors, not just the labor market report, that is influencing the situation,” says Gustavo Cruz, chief strategist at RB Investimentos. He points out that the U.S. employment figures did not bring any major news on Friday.
“The report points to an increase in the unemployment rate, but 4.3% is still a relatively low rate. Most groups of workers still have rates below 4%, except for the least educated, at 6.7%, and those who completed high school, at 4.6%. Wages have also stopped growing rapidly, which suggests possible interest rate cuts in the future,” he says.
For him, other factors that may influence financial markets include recent financial statements from companies in the United States and Europe, which are considered disappointing. “Especially in the automotive and financial sectors in Europe and in the technology sector in the United States,” he highlights.
In addition, former US President Donald Trump, who will run for the White House for the Republican Party, has positioned himself against the freedom of transactions of technology companies around the world, which also influences the market globally.
In the United States, the Dow Jones index fell 1.71% at the opening. The S&P 500 opened down 3.66%, while the Nasdaq Composite, heavily weighted by companies in the information technology sector, sank 6.34%.
The chief strategist at brokerage firm Avenue, William Castro Alves, also sees the causes for investors’ negative reaction on Monday as unclear. “It is always very difficult to justify and understand panic movements in the market,” he says. “Such movements often do not necessarily have a strong conditioning factor in economic fundamentals,” he says.
In addition to a possible slowdown in the US economy and rising interest rates in Japan, which should strengthen the yen and harm the country’s exporting companies, the economist cites other factors that influence the global economic scenario, such as the risk of escalation in geopolitical tensions in the Middle East.
Last week, Hamas leader Ismail Haniyeh was assassinated in Iran, hours after Hezbollah commander Fuad Shukr was executed in Lebanon.
In the United States, profit-taking by technology companies also contributes to a movement of stock sales and, consequently, depreciation of shares.
Furthermore, Alves says, the news that investor Warren Buffet reduced his exposure to some of his main positions ended up increasing the perception that the current risk versus return ratio of the market was not so favorable.
“We see the market’s reaction as overblown and reflecting fears of a strong and/or severe recession ahead, which we view as highly uncertain,” says the Avenue strategist. “It is worth noting that the US economy has already faced 48 recessions in its history, and that, despite the difficult times, the dollar has remained the main global reserve currency.”
For him, in the short term, with the fall in the value of shares in parallel with a reduction in interest rates, there is a tendency for an increase in fixed income assets, which could increase the value of the US currency against the real.
On Monday, around noon, the dollar was quoted at R$5.78, up 1.22% compared to Friday’s closing price (R$5.71).
Alex Carvalho, an analyst at CM Capital, points out that, despite investors’ behavior reflecting the global bad mood, in Brazil companies are in earnings season, which in the coming days could result in share appreciation.
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