Recession fears dominate as market selloff continues

• European markets head lower after US ISM PMI decline
• Nvidia collapse highlights risks posed for big tech
• BoC rate decision and JOLTS job openings ahead

European markets are following their US counterparts lower, as recession fears hinder markets across the board. Notably, we have seen very few assets escape the ire of the market decline, with havens such as the dollar and precious metals also losing traction in response to the burgeoning recession fears. Yesterday’s ISM manufacturing PMI found itself at the centre of things once again this month, with a worst-case scenario of a deepening contraction in the sector tallying up with every higher price pressures. However, in manufacturing we are talking about roughly 9% of the US economy and thus there will be a big focus on tomorrows ISM services sector PMI as a more reliable gauge of economic growth.

A near 10% collapse in Nvidia shares helped turn a bad day into an awful one for the markets, although the belated announcement that the DoJ had issued a subpoena to the firm for an antitrust investigation at least does provide some basis for such a dramatic move. While many tech companies have long positioned themselves to necessitate consumers to solely use their products, there is a feeling that Nvidia does not have a history of abusing their monopolistic position. Nonetheless, markets find themselves in a unstable position as we await further evidence on the health of the economy, and the lofty valuations attached to many of these big tech names will put them in the firing line when it comes to trimming back on equity positions.

The Bank of Canada look set to announce the first rate cut of September, coming in a month that markets expect will also bring easing from the ECB, BoE, FOMC, SNB, and RBNZ. While that should be a positive for market sentiment, the question is whether such moves are now priced in. Meanwhile, the JOLTS job openings figure provides the first insight into the US employment picture, as we build up towards Friday’s all-important jobs report. Coming off the back of a two-year period of declines for US job openings, markets expect a decline after two-months of tentative gains. The question from here is whether the concerns around a potential recession will ensure that every data point will be treated in a similarly volatile manner.