Global financial markets are in turmoil

Stocks and cryptocurrencies plunged in the first session of the week amid concerns about the US economic crisis and escalating geopolitical risks.

Today will go down in Japanese stock market history as the darkest day ever. At the opening of trading this afternoon, the Nikkei 225 fell 13%, surpassing the "Black Monday" record of 1987.

In the South Korean market, major indices such as Kosdaq and Kospi lost nearly 11%. Markets considered more stable, such as Singapore, were not spared from the sell-off, falling more than 3%. The MSCI Asia-Pacific Index at one point fell as much as 5.5%, the largest drop since March 2020 and also nearly wiped out the gains from the beginning of the year.

Major European stock markets also opened in the red. Britain's FTSE 100 and All Shares dropped more than 2% at the open. Major indexes in Denmark and Poland fell nearly 4%. Futures on major Wall Street indices also fell, signaling a less positive start to the week.

The sell-off was so severe that circuit breakers were triggered across Asia. The Osaka Stock Exchange was forced to suspend trading of Nikkei 225 and Topix futures. In South Korea, authorities halted all selling orders in an effort to stem the sell-off. The emergency action by South Korean authorities, analysts said, showed the severity of the turmoil as investors fled risky assets around the world.

An electronic board outside a securities company in Tokyo shows the Nikkei 225 index falling more than 4,700 points on August 5. Photo: AFP

Cryptocurrencies, a risky investment that often goes hand in hand with stocks, are also in the red. Bitcoin , the world's largest cryptocurrency by market capitalization, is down nearly 15% in the past 24 hours. Ethereum has seen its biggest drop since 2021, down more than 20%. Together, the two largest coins have lost nearly a third of their market capitalization in the past seven days.

The sell-off pressure in the market also spread, causing a series of investors to liquidate their futures trading positions. According to Coinglass , more than $1 billion in positions were liquidated on cryptocurrency exchanges.

On the other hand, money is pouring into safe-haven assets. In the bond market, prices have risen sharply, pushing US government bond yields to their lowest level in more than a year. In Japan, 10-year bond yields have also plunged, hitting their lowest level since April.

The sell-off spread across the stock market due to a series of factors . Fears of an economic crisis in the US have created a wave of selling from foreign investors. In addition, the cause may come from the move to raise interest rates by the Bank of Japan (BoJ) last week. The decision to raise interest rates from 0.1% to 0.25% has sparked a series of consecutive selling.

Meanwhile, in the US, job growth in July was significantly slower than expected, while the unemployment rate rose to its highest level since October 2021. The US Department of Labor said the economy created only 114,000 jobs last month, down nearly 36% from June and 38% lower than the forecast of economists participating in the Dow Jones poll. The unemployment rate also increased to 4.3%.

In addition, geopolitical tensions in the Middle East are also fanning the flames of uncertainty in global financial markets. Oil prices continued to fall amid speculation that Iran could retaliate against Israel following the assassination of Hezbollah commander Fuad Shuk and Hamas leader Ismail Haniyeh. Stock markets in these countries were also in the red amid concerns of escalating geopolitical tensions.

Significantly weaker-than-expected economic data has led analysts to believe that the US Federal Reserve (Fed) will likely cut interest rates in September, and the reduction will be up to 50 basis points (0.5%).

“We have increased our odds of a recession in the next 12 months to 25%,” analysts at Goldman Sachs said in a note, although they see the danger as limited by the scope of the Fed’s policy easing. The investment bank now forecasts the Fed will cut rates by 0.25 basis points in September, November and December.

"The premise of this forecast is that US employment growth will rebound in August, and that the Federal Open Market Committee (FOMC) - the Fed's policymaking body - believes that a 25 basis point cut is sufficient to address any risks," Goldman Sachs added. "If we are wrong and the August jobs report is as weak as July, a 50 basis point cut in September is likely."

Analysts at JPMorgan are even more bearish, giving a 50% chance of a US recession within the next year. "The Fed looks significantly behind, we expect a 50 basis point cut at the September meeting, followed by another 50 basis point cut in November," said economist Michael Feroli.

In addition to the fear of a crisis, the market is also affected by many other factors. The US presidential race is heating up with the confrontation between Republican candidate Donald Trump - who supports cryptocurrency - and Democratic candidate Kamala Harris - who has not yet clearly stated her position. The sale of confiscated Bitcoin by governments also makes the market pessimistic.