JSE joins global market rout

US stock futures tumbled as the global stocks selloff deepened amid concerns that the Federal Reserve is moving too late to support a slowing economy, sending investors into the safety of bonds.

As of 10:00 Monday morning, the JSE’s All-Share Index lost almost 2%. The JSE financial 15 index was down 2.5%, resources 10 down 2.27% and the Top 40 index down 1.98%.

The rand slumped to its worst level in a month, hitting R18.50/$ early on Monday after reaching R18.12 last week. 

Nasdaq 100 futures tumbled as much as 6.5%, coming close to triggering a circuit breaker, after the index entered a technical correction on Friday. S&P 500 contracts were down more than 2.5%. Europe’s Stoxx 600 benchmark slumped more than 2%, set for its biggest three-day decline since June 2022.

In Japan, both the Topix and Nikkei indexes fell over 13%. Taiwan’s benchmark had its worst day on record, while a gauge of Asian shares slipped the most in over four years. The yen rallied more than 2.5% against the dollar. 

The selloff was fueled by data Friday that showed the US jobs market weakening, which triggered a closely watched recession indicator.

Investors are also fretting about elevated valuations from the artificial intelligence rally while rising tension in the Middle East is adding to the risk-off mood. News that Berkshire Hathaway had slashed its stake in Apple by almost 50% also weighed on sentiment.

“It’s a pretty dramatic shift in narrative, which shows how much of the recent trends were backed by expectations of a US soft landing,” said Charu Chanana, head of currency strategy at Saxo Bank A/S.

“The more the US soft landing assumption gets questioned, the further pullback we could see inequities.”

The 10-year Treasury yield fell five basis points to 3.74%, the lowest on a closing basis in more than a year. The two-year yield plunged 11 basis points as traders wagered the Fed might have to cut more than anticipated in September. Global bonds erased their losses for the year. 

Japan’s benchmark 10-year bond yield fell to its lowest since April, slipping as much as 17 basis points on Monday.

The nation’s biggest lender, Mitsubishi, saw its shares post their biggest intraday drop on record as the falling bond yields threatened to eat into loan margins.

The global equity declines reflected worries on the economic outlook, geopolitical risks and questions over whether heavy investment into artificial intelligence will live up to the hype surrounding the technology.

Economists at Goldman Sachs Group Inc. increased the probability of a US recession in the next year to 25% from 15%, although it added there are reasons not to fear a slump.

Meanwhile, the MSCI emerging-market stock index slumped more than 3%, on track for the biggest one-day drop since March 2022.

Developing-nation currencies pushed higher – led by Malaysia’s ringgit – while the Mexican peso’s slump extended as traders continued to unwind emerging-market carry trades.

The sudden appreciation in funding currencies, such as the yen and China’s yuan, has damaged the carry trade, which typically involves traders borrowing at lower rates to invest in higher-yielding assets. 

Elsewhere, oil extended a decline to a seven-month low as a selloff in wider financial markets countered rising tensions in the Middle East.

Israel is bracing itself for a possible attack from Iran and regional militias in retaliation for assassinations of Hezbollah and Hamas officials. Cryptocurrencies also reeled from risk aversion in global markets on Monday.

With just three Fed meetings left swap pricing reflects the growing perception that the central bank will need to make an unusually large half-point move at one of the gatherings or act between its scheduled meetings — moving rapidly to bolster growth. 

“From a Fed perspective, this does not translate into making hasty policy decisions, but it should help them remove the rose-tinted glasses when assessing policy decisions at the next meeting,” said Charlie Ripley at Allianz Investment Management.