In the past few days, global markets have been plummeting. Trading screens across the US, Asia, and parts of Europe are filled with blinking red numbers heading downward. What is causing this, and what might come next?
On Monday, the crypto market experienced a severe downturn, with Bitcoin price dropping 15% to a low of $49,000, a significant fall from its $70,000 high last week – a 26% crash. Similarly, Ethereum plunged from $3,400 to $2,100, erasing all its gains for the year, with a nearly 50% drop from its 2024 peak of $4,100 in early March. The second-largest cryptocurrency is experiencing its worst times since 2021, down 33% since the beginning of the month.
The recent launch of spot Ethereum exchange-traded funds in the US didn’t help improve the mood. Instead, they worsened the selloff, turning it into a rout. On Friday, the nine approved spot-trading Ether vehicles recorded a record $54.3 million in net outflows.
The initial trigger for the current market volatility appears to be growing fears of a US recession, sparked by unexpectedly weak US job market data on Friday. The July report showed a gain of only 114,000 jobs – significantly below Wall Street’s prediction of 175,000. This was the weakest job growth since December of last year and nearly the lowest since the start of the COVID-19 pandemic in March 2020.
The unemployment rate also rose to 4.3%, a near three-year high, triggering what is known as the "Sahm rule."Adding to these concerns was the US Federal Reserve's decision last week not to cut interest rates, while other central banks in developed economies, including the Bank of England and the European Central Bank, have recently cut rates. This led to speculation that the Fed had waited too long to act.
The market’s fall was further exacerbated by significant movements in the forex markets, especially with the Japanese yen. After the Bank of Japan raised its key interest rate, the yen strengthened considerably against the US dollar. This pressured traders who had engaged in the “yen carry trade,” borrowing yen at low rates to purchase higher-yielding US assets.
This rate hike, the second since 2007, sent shockwaves through the global financial sectors. Historically, rate hikes by the Japanese central bank have been precursors to global recessions. On top of all this, technology companies and their share prices added to the market's anxiety. A long-running rally in tech shares, driven by optimism over AI, hasn’t brought much joy recently. One of the latest news related to tech stocks was the revelation that Warren Buffett’s Berkshire Hathaway sold about 50% of its Apple holdings, totaling about 390 million shares. Berkshire's cash reserves hit a record $277 billion, raising concerns about Buffett's market outlook.
The reasonable question most would ask here is, “Are we all in trouble”? To be honest, the outlook is not very optimistic at the moment. Therefore, it is advisable to exercise caution in the market and avoid leveraged trades, which could lead to significant losses.
This article was written in cooperation with TradingView