Monday Meltdown in Equities Markets

An abbreviated report today as I am en route back to DC from Missouri.

— A global stock-market selloff intensified, leading to significant declines across major indices. The Nikkei 225 in Japan experienced a dramatic drop of over 12%, marking its most substantial decline since the 1987 crash. Meanwhile, U.S. stock futures also fell, continuing the downward trend observed in the previous Friday’s selloff. This widespread market turmoil reflects heightened investor anxiety and volatility. Investors around the globe piled into government bonds. Global bonds erased their losses for the year.

S&P 500 futures were down 3% this morning. Mega-cap tech stocks were down hard: Nvidia was down 11% premarket, while Apple was off 7.5%.

Bitcoin tumbled more than 10%, wiping out more than $100 billion in value off the volatile digital currency.

— Goldman Sachs economists raised the likelihood of a U.S. recession in the next year to 25%, up from 15%. Despite this increased probability, they cite several factors that mitigate concerns about a significant economic downturn. The overall economy remains stable, there are no major financial imbalances, and the Federal Reserve has significant capacity to reduce interest rates rapidly if necessary. This assessment comes after recent U.S. jobs data indicated a notable slowdown in hiring for July and the highest unemployment rate in nearly three years.

— The VIX, Wall Street’s fear gauge, hit 37 early today. If it holds, that will be the VIX’s highest closing level since October 2020.

— House affordability in focus. Despite expectations on Wall Street for the Federal Reserve to start easing monetary policy, only 24% of the 489 participants in the latest Bloomberg Markets Live Pulse survey believe mortgage rates will drop sufficiently to make homeownership more widely affordable by 2025. This suggests a prevailing skepticism about the potential impact of Fed actions on housing affordability soon.

— Markets have quickly priced the chance of an emergency Federal Reserve rate cut over the next week at 60%. The Fed could act ahead of the Sept. 17-18 meeting to alter rates, but that could further unsettle markets as that would be interpreted as a signal the Fed was truly worried about the prospect of a hard landing or even a recession for the U.S. economy.

— Grains weaker to open the week. Corn, soybeans and wheat traded lower overnight, pressured by generally favorable weather and strong risk aversion. As of 7:30 a.m. ET, corn futures were trading 4 to 5 cents lower, soybeans were mostly 5 to 6 cents lower and wheat futures were 8 to 13 cents lower. The U.S. dollar index was down more than 550 points and front-month crude oil futures were around $1.40 lower.

— Ag trade: Indonesia purchased 320,000 MT of rice – 185,000 MT from Vietnam and 135,000 MT from Myanmar. Jordan tendered to buy 120,000 MT of optional origin milling wheat.

— Risk of more selling in cattle futures. Cattle futures faced heavy pressure from long liquidation late last week. With economic concerns building, there’s risk of the selloff extending, despite futures being well below the cash market. Cash fundamentals are often ignored when macroeconomic concerns build.

— Cash hog index extends rally. The CME lean hog index is up another 11 cents to $93.64 as of Aug. 1, extending the string of gains to 15 consecutive days. August lean hog futures, which expire Aug. 14 and are settled against the index two days later, finished Friday at a $1.44 discount to today’s quote. The pork cutout fell $1.55 on Friday amid pressure on all cuts.

— Hurricane Debby made landfall in Florida’s Big Bend Region today, bringing with it life-threatening storm surge, severe flash flooding, urban and river flooding, strong winds, and tornadoes, according to the National Weather Service. The hurricane has sustained winds of 80 mph. After making landfall, Debby is expected to move slowly across northern Florida and southern Georgia today and Tuesday, reaching the Georgia coast by Tuesday night. The National Hurricane Center forecasts that Debby will cause 10 to 20 inches of rainfall in southeast Georgia, the coastal plain of South Carolina, and southeast North Carolina, with local amounts up to 30 inches, potentially resulting in catastrophic flooding through Saturday morning. Forecasters warned that Debby appeared to be a slower-moving storm that could bring “potentially historic” rainfall to areas.

— Israel is currently on high alert, anticipating potential retaliatory attacks from Iran and its ally Hezbollah following the recent assassinations of senior militant leaders from Hamas and Hezbollah. The assassinations have significantly heightened regional tensions. Iran has publicly condemned the recent assassinations and has vowed to retaliate against Israel. Ayatollah Ali Khamenei, Iran’s supreme leader, ordered direct strikes against Israel, framing the response as necessary to maintain regional stability and deter further provocations. Despite these threats, Iran has indicated it wants to avoid a full-scale war, focusing instead on targeted punitive actions. The United States has expressed strong support for Israel’s right to self-defense while urging both sides to de-escalate the conflict. President Joe Biden and other U.S. officials have been involved in diplomatic efforts to prevent a wider regional conflict, including pressing for a ceasefire in Gaza.

Brent crude, the global benchmark, fell despite growing tensions in the Middle East.

KEY LINKS