Sharp downfall: Smells like 1987, investors on the run

Global stock markets fell sharply on Monday, with Japanese shares surpassing their losses since Black Monday in 1987, fears of a US recession sent investors fleeing risky assets while betting that interest rate cuts would be needed to save growth.

Safe-haven currencies such as the yen and Swiss franc rallied as high-yielding trades unraveled, prompting speculation that some investors were selling profitable trades to get cash to cover losses elsewhere. There were so many sales that work interruptions were activated at stock exchanges across Asia, reports the Biznis portal.

Japan's benchmark Nikkei closed down 12.40 percent at 31,458.42, its biggest one-day drop since October 1987, while the broader Topix lost 12.48 percent to 2,220.91.

European shares opened the session down 1.8 percent, with France's CAC 40 down 2.1 percent, Spain's IBEX down 2.8 percent, and Britain's FTSE 100 down 1.7 percent on fears of a global recession after weak data in the US. Ten-year US Treasury yields hit 3.723 percent, the lowest level since mid-2023.

The huge drop in Treasury yields has also overshadowed the US dollar's usual appeal as a haven. The US currency weakened by 0.4 percent against other major currencies. The Swiss franc gained due to risk-off, with the greenback holding on to a six-month low of 0.8485 francs.

A worryingly weak July wages report on Friday led markets to estimate a 78 percent chance that the Federal Reserve will not only cut interest rates in September but cut them by a full 50 basis points. Futures imply a cut of 122 basis points this year and about 3.0 percent by the end of 2025.

"We have raised our odds of a recession in the next 12 months by 10 percent to 25 percent," Goldman Sachs analysts said in a note, although they noted that the danger is limited because of the Fed's wide room to ease policy. Goldman expects cuts of 25 basis points in September, November, and December.

JP Morgan analysts were even more pessimistic, giving a 50 percent chance of a US recession. "Now that the Fed appears to be materially lagging, we expect a 50-basis point cut at the September meeting, followed by another 50-basis point cut in November," this analyst said.

The price of Bitcoin fell below $52,500 on Monday in a sharp decline that sent the leading cryptocurrency down more than 11.50 percent from $58,350 in less than two hours. Bitcoin fell 5.69 percent to $58,987 on Sunday. The world's largest and best-known cryptocurrency fell 3.98 percent to $60,050 on Saturday.