Earlier today, US stocks plummeted as part of a global market sell-off centred around recession fears. The Dow Jones Industrial Average dropped 926 points (2.3%), the Nasdaq Composite lost 3.9%, and the S&P 500 slid 3%. Earlier, the Dow had fallen as much as 1,200 points before slightly recovering due to a better-than-expected services PMI reading for July. Japan’s Nikkei 225 also plunged 12%, marking its worst day since the 1987 Black Monday crash on Wall Street.
The disappointing July jobs report, which saw only 114,000 jobs created against Wall Street’s forecast of 175,000, sparked these recession fears. Analysts at JPMorgan now estimate a 50% probability of a US recession, predicting that the US Federal Reserve might cut interest rates by 50 basis points (bp) in both September and November. This is a significant shift for the Fed, which had maintained the highest rates in two decades.
Here in the UK, the Bank of England recently made its first 25bp cut, warning that further rate reductions would be gradual. However, Tso believes that the current developments could alter the approach of central banks worldwide.
She explained to Sky News: “The consequences are huge because it’s not just the Fed we’re talking about here. If this is the case and we’re talking about a change to monetary policy in the US, it could mean other central banks from the ECB to the Bank of England to beyond could be talking about more aggressive rate cuts.”
Janet Mui, head of market analysis at investment management firm RBC Brewin, agrees, and said that the BoE “will certainly feel that pressure to cut interest rates further. If you have a floating rate mortgage, you could potentially see more relief down the line. And if you’re going to remortgage or have a new mortgage, I think you’re very likely to be getting a much lower rate,” she told the broadcaster.