Good morning. The global rout in stocks is intensifying as worries about the US economy and big tech mount. Thatâs heaping more scrutiny tha [View in browser](
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Good morning. The global rout in stocks is intensifying as worries about the US economy and big tech mount. Thatâs heaping more scrutiny than usual on Fridayâs payrolls data. Hereâs what traders are talking about. â [David Goodman]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Stocks slump A selloff in stocks[intensified on Friday]( as concerns deepened over the health of the US economy and the outlook for technology companies. Futures contracts for the Nasdaq 100 dropped 1.6% after a sharp decline on Thursday, while Japanâs benchmark index sank by the most since 2016 and Europeâs Stoxx 600 index fell 1.5%. Data worries The selloff was partly sparked by data that showed US [unemployment claims]( an almost one-year high while manufacturing shrank, increasing concerns about a hard landing. That puts even more attention than usual on todayâs [US payrolls data]( which are expected to show a 175,000 increase in employment last month following Juneâs 206,000 rise. A downward surprise could spark even more volatility. Tech concerns The other story driving the slump is the downbeat earnings season from US tech giants. Yesterday saw disappointing results from[Amazon.com]( and a weak sales report from[Intel]( making traders question whether the returns from artificial intelligence are worth the cost. [Apple]( predicted that its new artificial intelligence features will spur iPhone upgrades in coming months, but it also flagged sluggish performance in China. All three companies fell in pre-market trading. Fed questions The selloff partly reflects worries that the Federal Reserve has [left it too long]( to cut interest rates. Traders are now betting that officials may need to move faster to catch up and see the Federal Reserve delivering three consecutive quarter-point cuts in September, November and December. Markets are also pricing a more than 30% chance that one of those reductions will be 50 basis points. Treasuries have proved a big beneficiary of that narrative, and[ extended a rally]( into a seventh straight day on Friday. Japan jitters Japan suffered more than most from the market turmoil. The Topix index is in the midst of its [biggest two-day decline since the 2011 tsunami,]( marking a stark turnaround from a record high set in July. The move comes after the Bank of Japanâs earlier-than-expected rate hike Wednesday and Governor Kazuo Uedaâs hawkish messaging. A stronger dollar is hammering exporters including Honda, while higher yields drag down real estate firms such as Mitsui Fudosan. What weâve been reading This is whatâs caught our eye over the past 24 hours. - Pound heads for[worst week since April]( after BOE cuts.
- A[600% gain]( illustrates cable makersâ green energy windfall.
- BNP Paribas set to buy Axa money manager[in â¬5 billion deal.](
- [Apple pressures]( Tencent and ByteDance over app fees.
- How [Nike ran into trouble](. And finally, here's what Simonâs interested in this morning Things are heating up in markets. The Bank of Japanâs interest-rate rise has started to let the air out of huge global macro imbalances that have built up through the post-pandemic years. Cross-asset volatility remains high, especially with equity volatility intimating signs of unease. Todayâs jobs data in the US, if it deviates too far in either direction from expectations, will add fuel to the fire. Thursday saw a nasty reversal in US and other stock markets, with Asian markets following through overnight. The VIX remains elevated and off its recent lows, while some measures of option gamma are now negative. The latter means that option dealers are more likely to accentuate, rather than dampen, market moves, leading to more volatility. Two other things could push equity volatility even higher. The first is index correlation. The average vol of single stocks is still higher than the VIX (implied vol on the S&P index.) But realized and implied correlation are picking up, as they tend to do in risk-off situations. The VIX tracks their rise as the underlying stocks on the S&P 500 start to reinforce one another more. As the chart below shows, correlations have only just started to increase, and they may continue to do so as deleveraging risk rises, e.g. catalyzed by the rally in the yen. Todayâs US jobs data are another potential source of volatility. Leading indicators continue to be consistent with a steady decay in the annual growth of payrolls, and a steady rise in the unemployment rate. Still, the market will respond to an unexpected number or one thatâs subject to revision. After the recent rally in US Treasuries, stronger-than-expected data is probably the greater risk. Nonetheless, the market will be hyper-alert to signs of a recession, when red and green SOFR futures (2025 and 2026 expiries) would start homing in on sub-3% levels. One data point canât tell you that, however, and the US economy looks on course for a soft-landing at the moment, with a low chance of recession in the next three-to-four months. Simon White is a macro strategist on Bloombergâs Markets Live. Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Stay updated by saving our new email address - Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select âMark as important.â
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