US Stock Selloff Continues Amid Growth Concerns and Rate Cut Fears

US stocks sold off sharply after a weaker-than-expected ISM manufacturing report raised fears over economic growth and the Federal Reserve's potential rate cuts. The yen and Swiss franc gained as safe havens, while US Treasury yields fell to multi-month lows. Japan's Nikkei faced its worst day in over four years due to Wall Street's slide and a stronger yen impacting exporters.

Equities

The FTSE 100 fell 1% on Thursday, marking its worst day in over three months, impacted by losses in the financial sector following the Bank of England's decision to cut interest rates by a quarter point to 5%. This move, the first cut since 2020, was seen as a cautious approach by the BoE amidst divided opinions on inflation pressures. The banking sector suffered significantly, with a 6.1% drop, as Societe Generale's reduced guidance on retail net interest income weighed heavily. Industrial metal miners also declined by 1.9% due to disappointing factory data from China and rising inventories.

Rolls-Royce shares hit a record high, surging 1.3%, after the aerospace engineer raised its operating profit and free cash flow guidance, reflecting a strong first half. Shell dropped 0.5% despite reporting a profit of $6.3 billion, which exceeded analysts' forecasts but was down 19% from the previous quarter.

In the US, the Dow Jones Industrial Average dropped 1.21%, the S&P 500 fell 1.37%, and the Nasdaq Composite tumbled 2.3%, driven by concerns over a slowing economy and ongoing restrictive monetary policy from the Federal Reserve. Initial gains in the market, buoyed by Meta Platforms' strong quarterly results and positive third-quarter outlook, were quickly erased. Meta's shares closed up 5.87%, significantly boosting the S&P 500.

Data showing a drop in manufacturing activity to an eight-month low and an increase in unemployment benefit applications added to economic slowdown fears. Major tech stocks like Apple and Amazon fell by 1.68% and 1.56%, respectively, ahead of their quarterly results. Post-market, Amazon's shares declined by 4.47% following its earnings report.

The small-cap Russell 2000 saw a significant decline of 3.03%, its biggest drop since February, as investors shifted between cheaper and more expensive stocks. Nvidia fell 6.67% amidst a broader selloff in chip stocks, exacerbated by Arm Holdings' conservative revenue forecast and Qualcomm's warning of a revenue hit due to trade curbs. Arm Holdings plummeted 15.72%, and Qualcomm dropped 9.37%. Moderna plunged 21.01% after slashing its 2024 sales forecast for COVID-19 and RSV vaccines. In contrast, Eli Lilly rose 3.5% after its weight-loss drug Zepbound showed promising trial results in reducing heart failure risks.

Forex & Commodities

The US dollar gained 0.35% to 104.41 on Thursday, driven by rising geopolitical tensions after the assassination of Hamas leader Ismail Haniyeh in Tehran, which led to threats of revenge on Israel. This situation boosted the dollar's safe-haven appeal. Additionally, the dollar rebounded from a selloff prompted by dovish comments from Federal Reserve Chair Jerome Powell, who suggested interest rates could be cut as soon as September if the US economy follows its expected path.

Sterling fell 0.96% to $1.2733, its lowest level since July 3, after the Bank of England cut interest rates by a quarter point to 5%. The decision was close, with policymakers divided on whether inflation pressures had eased enough. Governor Andrew Bailey indicated a cautious approach to future cuts.

The euro dropped 0.36% to $1.07865, reaching a three-week low. Meanwhile, the Japanese yen rose, continuing its gains from the previous day after the Bank of Japan increased rates to 0.25%, the highest since 2008. The yen, which hit a 38-year low of 161.96 against the dollar on July 3, was last down 0.21% at 149.65 yen.

Gold prices decreased by 0.4% to $2,438.32 per ounce after hitting a two-week high earlier in the session. The decline followed a rise in the US dollar. Traders are now focused on the upcoming US non-farm payrolls data for July, expected to show the addition of 175,000 jobs.

Oil prices fell over $1, with Brent crude closing 1.6% lower at $79.52 per barrel, and US West Texas Intermediate crude down 2.1% at $76.31. Despite concerns over potential Middle East conflicts, global oil supply remained stable.