Global equities took a hit on Thursday as U.S. manufacturing data disappointed, leading to the biggest one-day rout for financial stocks in Europe since March 2023. Treasury yields also fell on the back of this weak economic data, as well as a rate cut in the UK and the potential for policy easing in the U.S. MSCI’s global stock gauge was down by 1.37%, reflecting the negative sentiment in the market. Oil futures also retreated despite earlier gains, as concerns about a broadening Middle East crisis failed to impact global supply significantly.
The Federal Reserve kept interest rates steady but hinted at a possible cut in September, while the Bank of England preempted the U.S. central bank by lowering borrowing costs by a quarter-point. The U.S. Institute for Supply Management’s manufacturing PMI dropped to its lowest level since November, hinting at a contraction in a sector that plays a significant role in the economy. This data has raised concerns about the state of the economy, especially with Federal Reserve Chair Powell still hesitant about rate cuts.
On Wall Street, major indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experienced losses, reflecting the overall pessimistic mood in the markets. Tech giants like Apple and Amazon.com were set to report earnings later in the day, adding to the uncertainty. In Europe, the STOXX 600 index closed lower, with the banking sector seeing its largest decline since March 2023. The disappointing results, slow growth in industrials, lack of Chinese consumer demand, and potential inflation resurgence painted a grim picture for European markets.
Despite the negative sentiment in global equities, the FTSE 100 in Britain bucked the trend due to cautious statements from the Bank of England Governor about the pace of rate cuts. This more gradual approach to monetary policy in the UK could be a sign of things to come in other markets. Emerging market stocks and Asia-Pacific shares managed to hold onto gains, while Japan’s Nikkei experienced a significant drop due to a stronger yen following the Bank of Japan’s interest rate hike.
In the U.S., the focus remains on the Federal Reserve’s monetary policy outlook as Chair Jerome Powell indicated a possibility of a rate cut in September. Powell highlighted the risks to employment being on par with rising prices, prompting market analysts to interpret the central bank’s stance as more neutral. This shift in tone, along with the upcoming U.S. payrolls report, kept investors on edge. The benchmark U.S. 10-year note yield fell, while the dollar index gained against a basket of currencies. Commodity markets also saw a decline, with U.S. crude and Brent oil prices slipping, and spot gold decreasing in value.
