Global markets in turmoil over US recession fears

The US Federal Bank was last night accused of leaving interest rate cuts ‘too late’ after weaker-than-expected jobs data fuelled fears of an economic slowdown in the world’s largest economy.

Official figures showed just 114,000 jobs were produced in July, below analyst estimates of 175,000 roles.

The ‘disappointing’ figures stoked fears that high interest rates had choked off growth and that the US was heading for recession.

This accelerated a global stock sell-off sparked by disappointing results from American firms and gloomy economic data. Tech shares were hardest-hit as analysts warned that artificial intelligence is in a ‘bubble’.

This week the Fed, the US central bank, held borrowing costs at a 23-year high of between 5.25 per cent and 5.5 per cent.The jobs data has piled pressure on it to cut interest rates in September – the last opportunity before November’s election – and maybe several times again before the end of the year.

But analysts warned that policymakers may have held borrowing costs for too long to pull off a ‘smooth landing’ for the economy, which would see inflation falling back to target without a severe spike in job cuts.

Investors were already nervous after a survey this week showed a bigger than expected contraction in US manufacturing.

Russ Mould, the investment director at AJ Bell, said: ‘The narrative has changed from rate cuts equating to good news to rate cuts meaning measures to avoid recession.’

The S&P 500, Dow Jones Industrial Average and the tech-focused Nasdaq composite all fell deep into the red yesterday.

Shares in chipmaker Intel tumbled around 26 per cent after it revealed plans to cut 15,000 jobs after missing earnings forecasts.

And Amazon fell nearly 10 per cent on a warning that sales for the quarter will come in below previous estimates.

Shares in chipmaker Nvidia dipped 3 per cent after hedge fund Elliott Management told investors that the Korean firm is in a ‘bubble’ and its AI technology is ‘overhyped’. The prospect of the world’s largest economy slumping triggered a global sell-off.

Japan’s benchmark Nikkei 225 saw its second largest points drop in history and was down a staggering 5.8 per cent.

London’s FTSE 100 fell 1.3 per cent  and the pan-European Stoxx 600 index dropped 2.73 per cent.

Matthew Ryan, analyst at Ebury, said it was an ‘extremely soft US labour report’.

‘The undoubtedly disappointing data has amplified concerns that the Fed has perhaps left it too late to start cutting US interest rates,’ he said.

Richard Flynn, managing director at Charles Schwab UK, said: ‘Today’s figures may stir anxieties that central bankers haven’t moved fast enough to cut rates, nudging the jobs market into a downward spiral.

‘The Fed’s lengthy hiking campaign is so close to achieving its objective for inflation. Let’s hope that success doesn’t cause the labour market to tumble.’

Steve Clayton, at Hargreaves Lansdown, said the jobs report will ‘heighten speculation’ that the Fed could move by more than 25 points in September, and made further cuts this year more likely. It comes after the Bank of England cut rates from a 16-year peak of 5.25 per cent to 5 per cent at a meeting on Thursday.