08/05/2024 – 14:08
The world’s major stock markets began this week with a generalized decline, reflecting fears of a recession following the release of data on the American economy. The unemployment rate in the United States rose more than expected in July, to 4.3%. This is the highest unemployment rate in the country since October 2021.
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In Europe, indexes opened with drops of at least 2%. In Asia, the declines were even more intense. The Nikkei, the main index of the Japanese stock market, closed in negative record, with a fall of 12.4%, the worst result in 37 years. While the Topix index lost 12.23%, the Taiwan stock market fell more than 8% and Seoul more than 9%.
The US employment report (Payroll) showed lower-than-expected job creation, especially in the Services sector, with a significant slowdown in the areas of Education and Health. In addition, lower wage growth also contributed to worsening the economic situation there, with the market seeing the possibility of a recession in the country.
“The market reaction seems excessive, given that there is no evidence that the US economy is entering a recession, although the risks have increased. Therefore, it is important to remain calm and wait for this process to be resolved, which should occur by the end of the month,” says Alexandre Mathias, chief strategist at Monte Bravo.
Concerns about interest rates in the US have also intensified, with the market starting to price in a larger cut in the country’s base rate at the next Federal Reserve (Fed) meeting in September.
“We need to remain calm and wait for the next data to assess whether we will have an economy that is slowing down significantly, heading towards a recession. Or whether we simply have an economy that is cooling down, which is what everyone was expecting after all,” says Helena Veronese, chief economist at B.Side Investimentos.
On Asian stock markets, the US scenario had an even greater impact for two reasons. First, because the data was only released in the US when Asian stock markets had already closed their sessions. Therefore, it had an impact on Monday’s session. Second, because the Japanese central bank (BoJ) raised interest rates to 0.25% and indicated the possibility of further increases. This led to an appreciation of the Japanese currency, the yen.
“The movement, which had already led the yen to a strong appreciation in relation to the US dollar and the main currencies, added to the more adverse international scenario and brought a ‘perfect storm’ for the Japanese stock market”, says Veronese.
William Castro Alves, chief strategist at Avenue, also adds that the announcement by Berkshire, owned by mega-investor Warren Buffett, about the decision to sharply reduce its main positions, heightening the perception that the current risk versus return ratio in the market is not favorable.
Added to this is the geopolitical factor, with the escalation of tensions from conflicts in the Middle East. Veronese explains that wars tend to be bad for economic activity in general, especially because the risk of recession increases. Therefore, despite the impact of the payroll data, “the backdrop was already one of great risk aversion,” due to the geopolitical scenario, says the economist at B.Side.
In Brazil, the market, in addition to replicating the global scenario, is also reflecting on this week’s Focus survey, which showed that economists consulted by the Central Bank raised their inflation projections and reduced the prospect of a drop in interest rates.
The survey, which captures market perceptions of economic indicators, showed that expectations for the IPCA at the end of 2024 are now 4.12%, compared to a forecast of 4.10% growth the previous week. Next year, the index is seen rising to 3.98%, from 3.96% previously. For the Selic, currently at 10.5%, economists raised their projection for the rate level at the end of next year to 9.75%, from 9.50%.
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