Halloween looks to have come early this year for global markets, with investors having to endure a shocker of a start to October as fears over the state of the US and global economies and escalating trade war concerns created the perfect storm for equities.
At the close on Wednesday – just the second session of the month – the Dow Jones Industrial Average was 494.42 points, or 1.9% lower at 26,078.62, while the broader S&P 500 index shed 1.8% and the tech-laden Nasdaq Composite lost 1.6%.
On Tuesday, October 1, the Dow Jones Industrials had dropped 1.3%, the S&P 500 index, 1.2% and the Nasdaq Composite 1.1%.
READ: US investors left trembling as US blue chips drop over 1% after worst ISM manufacturing index reading in over a decade
Worries over the health of the world’s biggest economy continued to cause major concern after a private-sector employment report from Automatic Data Processing showed a modest 135,000 jobs were created in September, below the consensus forecast for 152,000 jobs.
The average monthly job growth for the past three months also fell to 145,000 from 214,000 for the same time period last year, ADP said.
The weak numbers came hot on the heels of a dismal US ISM manufacturing activity report yesterday and ahead of Friday’s closely-watched monthly non-farm payrolls report.
Further signs of weakness in the US economy may prompt the Federal Reserve to lower interest rates again at its next meeting in late October following two back-to-back quarter percentage point cuts in August and September, which were the first easings in monetary policy by the Fed in over a decade.
Adding to the chaos was news the World Trade Organization (WTO) has backed a US request to impose tariffs on US$7.5 billion of European goods due to the EU subsidies which were previously handed to aircraft manufacturer Airbus, potentially sparking yet another escalation in President Trump’s trade wars.
Connor Campbell, financial analyst at Spreadex said he thought markets had “truly lost their minds on Wednesday”.
In a note to clients, Campbell said: “After a broadly recuperative September, October has gotten off to a dreadful start. Still having nightmares over yesterday’s manufacturing data, and worried by a lacklustre ADP nonfarm number, the Dow Jones began to properly gush blood after the WTO freed up the USA to impose tariffs on $7.5 billion in European goods, ‘settling’ the row over illegal EU subsidies to Airbus.
“With the economic hostilities between the US and China clearly having an impact on the global economy – just check out the week’s wave of painful PMIs – the WTO clearing the runway for an aggressive escalation on another front in Trump’s trade war is exactly the opposite of what investors wanted to hear.”
“Not only does this free-up Trump to attack the EU, it puts even more pressure on the month’s trade talks between the US and China, investors desperate for one battle to come to an end if another is just about to start,” the analyst added.
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