Global financial markets are experiencing a wave of risk aversion driven by fears of a US recession, with equities dropping sharply, the dollar weakening, and bonds and the yen strengthening. Asian markets closed poorly, with European markets following suit. Banking stocks were hit hard, with bond yields declining along the German yield curve.
Recent US data revealed a worse-than-expected contraction in manufacturing activity and signs of cooling in the jobs report. Quarterly results from tech giants have been mixed, contributing to the S&P 500 closing in the red. Warren Buffett sold off a large portion of his stake in Apple, boosting Berkshire’s cash holdings to a record high.
Investors rushed to safe-haven assets, particularly US Treasury bonds, as they increased bets on Federal Reserve interest rate cuts. Market-implied probabilities indicate expectations for rate cuts in September, November, and December.
Analysts predict continued dollar weakness and a strong yen, with the potential for high volatility. Goldman Sachs increased recession odds, while Danske Bank expresses a bearish outlook on EUR/USD due to excessive pricing of Fed rate cuts.
All eyes are on the ISM Services PMI for the US to gauge the spread of contraction from manufacturing to the services sector. Despite signs of weakening, experts believe the US economy is not on the brink of collapse. The situation remains uncertain, with analysts closely monitoring further developments in global markets.
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