60% chance of an emergency US Fed interest rate cut this week after financial market carnage..

Asian trading this morning has caused huge global financial market implications. A stock market reset is well underway after concerns over AI initially (profit expectations v investment into AI), has now branched out to many more underlying issues. 

The Japanese Yen has gained 3.5% versus the Pound today and whilst doing it, has sold off mammoth amounts of Japanese stocks. The Nikkei, has seen a record decline today, exceeding Black Monday (1987). 12% has been lost on the market with 9-months of gains wiped off.

The FTSE 100 has lost 2% today with the FTSE 250 and European exchanges falling by 3%. This is a very big and significant market event and the straw that broke the camels back were the latest US jobs number. Far fewer jobs were created than anticipated (114k v 175k) and this figure was the weakest since December last year and the second weakest since March 2020. 

With the US economy stalling, inflation not fully under control and now a very soft labour market, a US recession could be ahead if the Fed do not cut interest rates soon. The worlds second biggest economy China is also struggling and the Middle East tensions keep rising, so no wonder traders have flocked to safe-haven assets.

Oil is trading at an 8-month low, $270 billion has been wiped off the crypto market and tech firms are stuttering. Amazon is down by 4%, Intel have announced they are axing 15k jobs and Warren Buffet's Berkshire Hathaway have sold half of its stake in Apple. 

Back to GBP then and 0.5%+ has been lost against other safe haven currencies so far today. All of July's £-€ gains have been wiped and the pair is now at a 10-week low. 1.7% has been lost in just 7-days, on a £200,000 exchange this is a loss of €4,000. A mighty blow to those who didn't bank the recent profit in the pair.

The BoE decision to cut UK interest rates by 25bp last Thursday was no surprise with the chances at 50% at the time. Sterling fell by 0.5% across the board after the decision, but further devaluation since has occurred due to GBP not being a safe-haven currency. Further losses could happen if the Fed cuts interest rates, as the odds of more in the UK will shoot up and this naturally devalues GBP.



EUR
The Euro has been the major winner over the last 7-days. 1% has been made versus the USD and 1.7% against GBP. Considered a small safe-haven currency, the EUR is perfectly placed in a stock market turmoil environment and when the US is faltering. 

During the pandemic, the single currency played the sitting duck role very well and this is exactly what has happened in the last week. The Euro's recent gains are very likely to now be in overbought territory, but long-term, the picture may now look very different now that the BoE and likely the Fed soon are cutting interest rates.



USD
It was a huge week last time out economic data wise for the US and it didn't disappoint. No Fed interest cut arrived (as expected), but unemployment rose and as mentioned earlier, job creation was nervously low. There is a 25% chance of a US recession this year now and whilst the odds are still very low, it creates uncertainty and that is something markets do not like.

IF an emergency US rate cut arrives before the September meeting, it will just create more uncertainty and therefore larger market rate swings. In this environment, it's almost impossible to navigate without getting stung. A rate cut of 0.5% is expected next month, which will reverberate across all markets.