Calls mount for the Fed to step in and minimize charges

The US Federal Reserve was last night under pressure to make an emergency interest rate cut to halt panic over a potential recession in the world’s largest economy.

Global markets were in meltdown yesterday as investors were spooked by the prospect of an economic slowdown in America.

Traders bet that the US central bank will announce an urgent rate cut before a scheduled September meeting as stocks tumbled around the world.

It came after Japan’s stock market suffered its biggest one-day fall in more than 30 years and exchanges in London, New York and Europe also took a hammering.

Panic: Global markets were in meltdown yesterday as investors were spooked by the prospect of an economic slowdown in America

But some analysts said the rout was in part a ‘healthy’ market correction of overpriced tech stocks, as shares in firms such as Apple and Nvidia tumbled after months of gains.

Fears that the pay-off from huge investments in Artificial Intelligence could take longer than expected to be realised caused tech stocks to tumble.

The ‘Magnificent Seven’ – Meta, Alphabet, Amazon, Apple, Microsoft, Tesla and Nvidia – were yesterday set to lose nearly $900billion (£704billion) market value.

Goldman Sachs said that the chances of a US recession had risen from 15 per cent to 25 per cent. 

However, the investment bank also said the risk of an economic slowdown was ‘limited’ and the market reaction was a ‘healthy correction’.

It came after the US Federal Reserve was accused of holding borrowing costs high for too long after a weak jobs report and data showing shrinking manufacturing activity were published last week.

Money markets wagered that there is a 60 per cent chance the Fed will announce a 0.25 per cent cut within a week. Such a move would be unusual but not unprecedented.

Jeremy Siegel, a professor at the University of Pennsylvania Wharton School, told CNBC: ‘The market knows so much better than the Fed. They’ve got to respond.’

New York’s main indexes plummeted yesterday with the Dow Jones Industrial Average falling 2.6 per cent and the S&P 500 down 3.4 per cent. The tech-focused Nasdaq Composite slumped 3.9 per cent.

Shares in Apple fell 7.1 per cent after investor Warren Buffet halved his stake over the weekend.

Recession fears: Traders bet that the US Federal Reserve will be forced to announce an urgent rate cut before a scheduled September meeting as stocks tumbled around the world

Wall Street’s fear gauge – a closely-watched measure of investor anxiety, the CBOE Volatility index – soared to 61.65, its highest since April 2020.

The index fell back to 33.6 points later in the day – still a sharp increase. 

The return of volatility comes after an unusually long period of calm, where the S&P 500 went 356 sessions without a 2 per cent or larger move lower, the longest such streak since 2007.

Richard Hunter at Interactive Investor said: ‘To have let some air out of the tyres after a recent breathless run is usually seen as a healthy corrective.’

John Moore, a senior investment manager at RBC Brewin Dolphin, added: ‘The sell-off of the past few days is some of the recent froth that has developed in the share prices of tech stocks being blown away.’ 

Tokyo’s benchmark Nikkei 225 tumbled a staggering 12 per cent, its worst day since ‘Black Monday’ in 1987.

Also in Asia, Hong Kong’s Hang Seng was down 1.5 per cent, Taiwan’s Taiex fell 8.4 per cent and Korea’s Kospi dropped 8.8 per cent.

The Deutsche Bank analyst Jim Reid said ‘markets are melting down in Asia’.

‘Markets were on edge before Friday but a weak payrolls has really escalated a profound move across the globe,’ he said.

London’s FTSE 100 of the biggest UK-listed stocks closed 2.04 per cent down.

And in Europe the continent-wide Stoxx 600 index fell 2.2 per cent.