The Bank of England on Thursday delivered its first interest rate cut in over four years, reducing the key rate to 5%. The decision, passed with a narrow 5-4 vote, reflects the central bank’s cautious approach amidst economic uncertainty. Previously, the rate had been held at a 16-year high of 5.25% since August 2023. Following the announcement, UK gilt yields slipped as markets digested the news. This development added to the global market turbulence, with the Dow Jones Industrial Average plunging nearly 500 points due to rising recession fears. Fresh economic data, including an increase in jobless claims and a weak ISM manufacturing index, further contributed to investor anxiety, overshadowing recent optimism about a potential rate cut from the Federal Reserve in September. The S&P 500 and Nasdaq Composite also experienced significant losses, underscoring the market’s sensitivity to economic indicators.

Key Takeaways:

  • Dow Closes Nearly 500 Points Lower as Recession Fears Resurface: The Dow Jones Industrial Average dropped 494.82 points, or 1.21%, to end at 40,347.97. At its session lows, the 30-stock index lost 744.22 points, or about 1.8%. This significant decline reflects investor concerns about a potential recession, triggered by weak economic data including a rise in initial jobless claims and a disappointing ISM manufacturing index.
  • S&P 500 and Nasdaq Composite Decline Amid Economic Worries: The S&P 500 shed 1.37% to close at 5,446.68, while the Nasdaq Composite slipped 2.3% to 17,194.15. The Russell 2000 index, the small-cap benchmark, dropped 3%. These declines highlight the broad market’s sensitivity to economic indicators and fears of an economic downturn.
  • European Stocks Slide on Mixed Signals: European markets closed lower, with the Stoxx 600 index down 1.29%. Banking stocks were particularly hard hit, dropping 4.48%, while retail was one of the few sectors to see gains, adding 1.27%. The FTSE 100 lost 1.01%, ending at 8,283.36, and the CAC 40 plunged 2.1% to 7,370. The Bank of England’s decision to cut interest rates to 5% from 5.25% further unsettled the markets.
  • Asia’s Mixed Bag as Japan Stumbles and Australia Shines: Asia-Pacific markets had a mixed day, with Japan’s Nikkei 225 tumbling 2.49% to 38,126.33 and the Topix index plunging 3.24% to 2,703.69, mainly due to losses in real estate stocks and a stronger yen. Conversely, Australia’s S&P/ASX 200 hit new all-time highs, up 0.28% at 8,114.7, while South Korea’s Kospi rose 0.25% to 2,777.68.
  • US Jobless Claims Hit 11-Month Peak: Initial unemployment claims surged by 14,000 to a seasonally adjusted 249,000 for the week ending July 27, the highest since last August. This rise suggests some softening in the labour market, although layoffs remain generally low and the unemployment rate is expected to hold steady at 4.1%.
  • 10-Year Treasury Yield Drops Below 4%: The yield on the 10-year Treasury fell below 4% for the first time since February, trading at 3.974%. This drop was driven by weak economic data and comments from Federal Reserve Chair Jerome Powell hinting at a potential rate cut in September.
  • Oil Prices Fall Amid Economic Concerns: US crude oil futures dropped 2%, with the West Texas Intermediate September contract closing at $76.31 per barrel, down $1.60. Similarly, Brent October futures fell to $79.52 per barrel, down $1.32. Economic fears overshadowed geopolitical tensions, leading to the decline in oil prices.
  • Mixed Performance in European Manufacturing Sectors: Germany’s manufacturing sector continued to contract, with the HCOB PMI falling to 43.2 in July from 43.5 in June. France’s manufacturing PMI also dipped to 44.0 from 45.4, indicating deeper contraction. In contrast, the UK manufacturing sector showed signs of recovery, with the PMI rising to 52.1 from 50.9, its highest since July 2022, driven by increased output and new orders.

FX Today:

  • Gold Loses Shine Amid US Recession Fears Following ISM Data: The XAU/USD ended at $2,438, down 0.35%. If XAU/USD slides below $2,400, that could cause a drop to the July 30 low of $2,376. A further downside is seen if traders clear the $2,362 mark, followed by $2,334. On the other hand, if XAU/USD climbs past $2,450 and challenges the daily top at $2,462, the all-time high at $2,483 is up next, followed by the psychological $2,500 mark.
  • Silver Descends Over 2% Amid Recession Fears and Risk Aversion: The XAG/USD trades at $28.37, down over 2%. The precious metal shifted neutrally biased, as prices fell to $28.61, signalling bulls’ weakness. If XAG/USD drops below $28.00, the grey metal will challenge the latest cycle low at $27.31. On further weakness, sellers eye $25.98. On the other hand, if XAG/USD rises past $29.00, the next ceiling level will be $29.86, followed by the $30.00 psychological level.
  • EUR/USD Further Pullbacks Remain on the Table: EUR/USD dropped to fresh lows near 1.0780 on Thursday and closed at 1.0787. The pair posted notable losses on Thursday, pointing towards the weekly low of 1.0777, ahead of the June low of 1.0666 , and the May bottom of 1.0649. On the upside, the first hurdle is the July top of 1.0948, followed by 1.0981 and 1.1000. 
  • GBP/USD Accelerates Its Decline and Nears 1.2730: The GBP/USD fell back to the area of four-week lows near 1.2730. If this level stays intact as resistance, additional losses towards 1.2710-1.2700 could be seen. On the upside, 1.2800 aligns as first resistance before 1.2880 and 1.2900.
  • USD/JPY Plummets Below 150.00, Hits 5-Month Low and Turns Bearish: The USD/JPY pair plummeted on Thursday, breaking below the crucial 150.00 psychological level and closing below it for the first time since March, with the pair reaching a five-month high of 148.51. As Friday’s Asian session begins, USD/JPY trades at 149.34, largely unchanged. Should the pair climb back above 150.00, resistance is expected at 151.00, followed by the 200-DMA at 151.59 and the 152.00 mark. Conversely, a drop below 148.51 would target the next support zone at 148.00, with further support at the 146.48.

Market Movers:

  • Amazon Slides on Revenue Miss and Disappointing Guidance: Amazon shares slid as much as 5% in extended trading after reporting weaker-than-expected revenue for the second quarter and issuing a disappointing forecast for the third quarter. Although the cloud business exceeded analyst estimates, the advertising unit fell short.
  • Apple Declines Despite Beating Estimates: Apple shares fell 1% in extended trading despite reporting a 5% rise in sales, topping estimates as iPad and Services revenues jumped. Apple reported $21.45 billion in net income during the quarter, compared to $19.88 billion, or $1.26 per share, in the year-ago period. While Apple beat LSEG estimates, the iPhone product line declined about 1% on an annual basis to $39.29 billion in revenue.
  • Snap Falls on Disappointing Guidance: Snap’s shares fell more than 20% in extended trading after the company provided guidance for the third quarter that trailed analysts’ estimates. Despite monthly active users rising to 850 million from 800 million in February, the guidance disappointed investors.
  • Moderna Drops on Cut Guidance: Moderna’s shares dropped around 21% after the drugmaker cut its full-year sales guidance, citing lower European sales, a competitive environment for respiratory vaccines in the U.S., and deferred international revenue. Despite this, Moderna exceeded second-quarter revenue estimates and posted a narrower-than-expected loss for the quarter.
  • Meta Jumps on Positive Earnings and Forecast: Meta’s shares jumped nearly 5% after the company reported second-quarter earnings that beat Wall Street expectations and offered a positive revenue forecast. Net income soared 73% year over year, driven by significant cost-cutting initiatives started in late 2022. Meta highlighted how its investment in artificial intelligence is already yielding returns.
  • MGM Resorts Declines Despite Earnings Beat: MGM Resorts’ stock fell more than 13% even though the casino operator exceeded second-quarter earnings expectations, reporting earnings of 86 cents per share on $4.33 billion in revenue. Analysts surveyed by LSEG had expected 62 cents per share on $4.22 billion in revenue.
  • Carvana Spikes on Strong Quarter: Shares of Carvana soared around 10% after the company surpassed analysts’ expectations for the second quarter, reporting earnings of 14 cents per share on $3.41 billion in revenue. Analysts surveyed by LSEG had anticipated a loss of 7 cents per share on $3.24 billion in revenue. The used-car retailer also projected a record year in 2024.
  • Etsy Drops on Mixed Results: Shares of Etsy fell more than 7% after the e-commerce company reported mixed second-quarter results. Etsy beat revenue expectations with $648 million compared to the $630 million LSEG estimate, but adjusted earnings of 41 cents per share came in weaker than anticipated.
  • DoorDash Pops on Strong Revenue: DoorDash’s shares jumped 13% in extended trading after the company reported second-quarter results that beat analysts’ expectations for revenue. The delivery service company reported 635 million total orders in the quarter, a 19% year-over-year increase.

As recession fears resurface, the significant declines in major indices like the Dow Jones and Nasdaq Composite highlight the market’s sensitivity to economic data and investor sentiment. The mixed performance across various sectors, coupled with weak economic indicators such as rising jobless claims and a disappointing ISM manufacturing index, underscores the uncertainty facing the global economy. Despite the Federal Reserve’s signals of a potential rate cut in September, markets remain volatile, with notable movements in stocks like Shake Shack and Meta, which benefitted from strong earnings, while others like Moderna and Snap faced steep declines due to lowered forecasts and guidance. This volatility, reflected in both equity and commodity markets, suggests that investors are navigating a complex landscape of economic signals and market reactions.