Bets on emergency US rate cut ramp up as recession fears grow

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Investors have ramped up bets that the US Federal Reserve will be forced into an emergency interest rate cut to support the economy as fears of recession grow.
A stock market sell-off that began on Wall Street on Friday spread around the world on Monday, with heavy selling from Tokyo to London.
Shares plunged and bonds rallied amid growing fears that the world’s biggest economy is heading for recession and concern that an AI-fuelled stock bubble has burst.
The tech-heavy Nasdaq Composite plummeted by as much as 6.4pc as Wall Street opened – its worst daily drop since the start of the pandemic – extending losses after a 2.4pc drop on Friday. The broader S&P 500 sank by as much as 4.2pc.
Losses were pared back as the session went on, but the Dow and Nasdaq still closed down 2.6pc and 3.4pc respectively.
It followed sharp sell-offs in Europe earlier in the day, where the FTSE 100 closed down 2pc to register its biggest drop in more than a year. Overnight, Japan’s stock market suffered its heaviest loss since 1987.
The panic began at the end of last week after weaker-than-expected US economic data triggered fears that the Fed had left it too late to lower interest rates. The central bank held interest rates at 23-year highs of 5.25pc to 5.5pc last week, though chairman Jerome Powell indicated that the first cut since lockdown in 2020 was likely in September.
Frenzied bets on rate cuts at one point on Monday implied a 60pc chance that the central bank would be forced to announce a quarter of a percentage point interest rate cut within a week in response to the global loss in confidence.
Bitcoin fell more than 5pc as risk aversion spread throughout the market.
Large swings in market prices are likely to have been exaggerated by the fact it is August, a time when many money managers are on holiday. It means prices are being dictated by thinner trading volumes, which mean prices can swing more easily.
The scramble to sell triggered a series of outages of retail investor trading platforms, including Charles Schwab and Fidelity.
Both companies later said they had resolved any issues, while the odds of an emergency rate cut also ebbed to about 30pc.
Economists warned that an emergency interest rate cut by the Fed risked triggering more market turmoil in financial markets.
Michiel Tukker, senior European rates strategist at ING, said: “The question would then become: what does the Fed know that we don’t? And you don’t want to create the illusion that things are even worse than previously thought.”
Philip Shaw, chief UK economist at Investec, said a sustained sell-off could force policymakers to act.
He said: “Markets are falling but not seizing up. We are mindful that this can change, though, and signs of a threat to financial stability certainly would prompt central bank action. What matters is financial market confidence, which is somewhat intangible and therefore difficult to predict.”
Losses on the US stock market eased as the trading session went on after a closely-watched survey suggested fears of a US recession may be overblown.
The Institute for Supply Management (ISM) said its purchasing mangers’ index (PMI) for the services sector climbed to 51.4 in July, from 48.8 in June. Anything above 50 indicates growth.
However, the data followed weak manufacturing figures on Friday and Stephen Brown at Capital Economics said this was “historically consistent with GDP stagnating at best”.
Michael Gapen, US economist at Bank of America, said the panic triggered by a manufacturing slowdown was overblown, but added that the Fed was still likely to embark on a more sustained campaign of rate cuts.
He said: “We are forecasting a rate cut cycle that begins in September, with 25bp [basis point] rate cuts every quarter until a terminal rate of 3.25pc to 3.5pc in mid-2026. 
“Aggressive rate cuts of 50bp or more are done on an emergency basis, as are intermeeting actions. Could we get there? Sure. But we are not there yet.”
Read the latest updates below.
That’s it from us after a highly eventful day in the markets.
See you tomorrow for more business and finance news.
That’s it for trading on the Dow and the Nasdaq, which are down 2.6pc and 3.4pc respectively.
A range of commodities including copper, gold and crude oil have tumbled as traders scrambled to cash out of profitable positions as the prospect economic downturn in the US raised worries of weaker demand.
Copper was down 1.8pc on the London Metal Exchange after slumping as much as 3.8pc on Monday. Benchmark oil futures, meanwhile, were down 0.5pc having traded down 2.3% at the lowest level in seven months.
Phil Streible, chief market strategist at Blue Line Futures, said: “It’s just widespread panic. We’ve had record amounts of cash sitting on the sidelines.”
He added “bargain hungers” were taking advantage of lower prices.
Google abused its power to maintain an illegal monopoly over the online search market, a US judge has ruled. 
Judge Amit Metha said on Monday that the online behemoth had unfairly blocked competitors from succeeding in the market by paying $26bn to ensure it was the default search engine on smartphones and web browsers.
The verdict is a significant blow for Google and may pave the way for more competition in the market from rival search engines.
Kent Walker, Google’s president of global affairs, said: “This decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available.”
Our senior economics reporter Eir Nolsøe has taken a look at the impact of a potential economic downturn in the US on the upcoming election, and what it could mean for the two politicians vying to lead the world’s biggest economy.
Experts describing the world’s largest economy have in recent years opted for two words: “remarkably resilient”.
Even as interest rates soared to a 23-year high, American businesses continued to hire, consumers to spend and the economy to grow while defying economic gravity.
But in days the feelgood factor has evaporated, prompting traders to ask: is the party over?
Global stock markets are in free fall, the Wall Street fear gauge has hit a four-year high and money markets are betting the Fed will launch an emergency rate cut.
It comes just as the US election battle between Kamala Harris and Donald Trump is intensifying, potentially posing a fresh challenge for the Democratic vice president as she seeks to defend her party’s record in office.
Read the full analysis
Investors may be betting on an emergency US rate cut, but other voices are urging caution. 
Scott Wren, senior global market strategist at the Wells Fargo Investment Institute, told Reuters: “I think we have a combination of a growth scare and a fed policy scare. We went from months and months of ‘when’s the fed going to ease?’ and ‘how much are they going to ease this year and next?’ to one where growth is plunging and the fed is behind the curve.”
He added: “In our opinion, is the economy slowing? Yes. Is there any need for an emergency rate cut? Not in our opinion.”
He argued that many tech and communications services stocks that have fallen were overvalued and were in fact returning to “reasonable valuations”.
“I think what you’re going to see in coming weeks is data, whether it’s earnings, whether it’s economic data that says yes, the economy is slowing, the labor market is weakening, but they’re not weakening or slowing substantially. This looks a little bit overdone in our opinion.” 
Warren Buffett’s stock empire has lost at least $15bn (£11.75bn) on its biggest holdings amid the global stock market sell-off.
The money was wiped from the paper value of Berkshire Hathaway’s stock portfolio on Monday as Apple, Bank of America and Mitsubishi plummeted in value.
Business reporter Adam Mawardi has the latest:
The decline comes despite Mr Buffett’s investment company building up major cash reserves in recent months by slashing its stock market positions.
Berkshire Hathaway’s cash holdings jumped to a record $277bn last quarter, boosted by a $76bn stock sale.
These efforts will have helped lessen the impact of the global stock crash on Monday as concerns of a US recession intensify.
Shares in Berkshire Hathaway itself dropped 3pc in the market rout, bringing the company’s market cap down to $897bn.
The chaos triggered a sharp decline in the value of its stakes in Japanese companies, including Tokyo-based giants Mitsui, Marubeni and Sumitomo.
Berkshire Hathaway also suffered from hundreds of millions of dollars being wiped from the value of American Express, financial services company Moody’s and food manufacturer Kraft Heinz.
The investment company’s stake in Apple lost $5.7bn of its value after the tech giant’s share price dropped more than 7pc, according to calculations by The Telegraph.
It emerged over the weekend that Berkshire Hathaway had dumped almost half of its stocks in the iPhone maker, one of his largest positions.
Mr Buffett further reduced his company’s stake in Apple by more than $50bn to $84.2bn in the second quarter of 2024.
The S&P 500 is on course for its worst day in almost two years as worries for the US economy mount and investors panic over overheated gains in the tech sector.
The index was down 2.5pc as of 11:30am (4:30pm GMT). The Nasdaq 100, meanwhile, which tracks a high number of tech stocks, is currently down by just under 2.8pc. 
Matthew Rowe, head of cross asset strategies at Nomura Capital Management, said: “There are so many people who were overly long risk and short volatility and the game now stopped.
“There’s still a lot of uncertainty ahead on many levels: monetary policy, geopolitical, the outcome of an election. And equities coming from a point of valuations that were historically very high.”
Donald Trump has offered a characteristically snappy take on today’s market chaos. 
It is likely we will see more of this approach from the former president over the months to come if enduring turbulence allows him to put US Democrats on the defensive over their economic record. 
The parent company of Boots has suffered one of the worst falls of any S&P 500 company as stocks plunge across the Atlantic.
Walgreens Boots Alliance was down by almost 6pc at the time of writing, capping off a tumultuous year for the owner of the high street chemist, which shelved plans for a multibillion-pound sale of Boots for the second time this summer.
In June, Walgreens announced plans to close a large number of stores across the US and slash its profit forecasts, sending its shares plummeting to their lowest point since 1997.
Water utility providers were hit by a 4pc decline today, after Barclays downgraded the ratings of companies including Severn Trent and Pennon. The bank said it was no longer positive on the sector. 
Energy shares fell 3.2pc as fears of a US recession battered oil markets, while miners of precious metals fell 3.3pc on slumping gold prices. 
While only Haleon, the pharmaceuticals company, ended the day in the green, hospitality, consumer and retail firms were among the more resilient companies on the FTSE 100. 
B&M Retail suffered the smallest fall of 0.02pc, followed by Durex owner Reckitt, which dropped just 0.12pc. 
Whitbread, Kingfisher and Diageo all fell by less than 1pc. 
This was not the case across the board, though: Coca-Cola was among the biggest fallers on the FTSE 100, with a 4.94pc drop.
Retail brokers across the Atlantic have been hit by outages amid a frenzy of selloffs.
Charles Schwab, the US-based broker, posted on X that some clients “may have difficulty logging into Schwab platforms”, while Fidelity Investments said in a statement it was “aware some customers experienced intermittent issues earlier today”
Shares in Kellanova, the owner of Pringles, Cheez-It and Pop-Tarts, soared on Monday amid reports the snack maker could be eaten up by US consumer giant Mars.
Talks are taking place about a potential takeover of Kellanova that could value the company at as much as $30bn, according to the Wall Street Journal. Shares in Kellanova were up more than 13pc at the time of writing.
Kellanova was spun off from cereal maker Kellogg last year. For Mars, which is privately owned, the deal would give it a greater footprint globally and significantly boost its roster of food brands.  
It comes as Mars has been battling declining volumes and slowing growth due to consumers pulling back their spending across the world after a period in which the price of everyday goods has risen sharply.
Robert Moskow, an analyst at TD Cowen, said: “At times like this when growth slows, balance sheets are relatively clean, and valuations dip, the market leaders in food tend to look more closely at big combinations to drive cost synergies.”
The FTSE 100 and 250 indices were down 2.04pc and 2.76pc respectively as markets closed, putting an end to the FTSE 100’s worst day in over a year. 
UK stocks trudged valiantly upwards after a steep fall in the morning, but the session ended with all but one company – the pharmaceutical maker Haleon – in the red. 
The worst falls were suffered by Melrose Industries (-6.65pc), Scottish Mortgage Investment Trust (-5.78pc) and Severn Trent (-5.39pc).
The pound at 4:30pm was 1.2768 dollars compared to 1.2803 dollars at close on Friday. 
The former Federal Reserve economist, Claudia Sahm, has claimed that the US is “uncomfortably close” to a recession, as she suggested policymakers may change their approach in the face of growing risks. 
“We might not be there, but we’re getting uncomfortably close to that situation,” Ms Sahm told Bloomberg TV, pointing to the unexpected increase in joblessness across the US announced on Friday. 
“This increase in the unemployment rate has been, in the past, consistent with ‘early in recession’,” she added.
The weak US jobs report last week triggered the so-called “Sahm Rule”, an economic indicator of recession that is named after Ms Sahm.
However, Ms Sahm cautioned that policymakers should think before making spur-of-the-minute decisions, saying: “Calm is important at a moment like this.”
BAE Systems is under pressure to review the size of its holding in Kazakhstan’s Air Astana with shares of the carrier down 30pc after listing on the London Stock Exchange in February.
Air Astana boss Peter Foster said he’s concerned his company lacks necessary liquidity due to the continuing dominance of its shareholder base by BAE and Kazakh sovereign wealth fund Samruk Kazyna.
Our transport editor Christopher Jasper has the latest:
BAE currently has a 17pc stake in Air Astana, reduced from 49pc prior to the IPO, while Samruk Kazyna holds 41pc, down from 51pc. Including shares held by Citibank and a Kazakh pension fund, just four institutions or corporations control 88pc of the shares.
Mr Foster told The Telegraph: “We need to work with them to find ways that we can improve liquidity and raise the profile and visibility of the stock so that we don’t have dramatic movements when there are very small transactions.”
He said any decision to reduce the holdings would be a matter for Samruk Kazyna and BAE, and that the UK firm had made an “immeasurable” contribution to founding and supporting Air Astana.
BAE helped establish Air Astana in 2001 as it pursued a Kazakh radar contract that never materialised, but was ultimately rewarded as the IPO valued the airline at almost $850m.
Mr Miller said it’s also important that investors understand the business model of Air Astana, which links Europe and the Far East via its hubs in central Asia. The airline posted higher revenue and profit in the first half, despite not being able to fly to or over neighbour Russia.
Gold prices dropped as the global market rout even hit precious metals.
Bullion fell as much as 3.2pc in its biggest single day drop since early June, while silver sank as much as 7.2pc.
Adrian Ash, director of research at BullionVault, said margin calls had “forced traders to liquidate winning positions in gold to cover their losses on stocks”.
Gold is still up by about 15pc so far this year after hitting a record high in July amid buying by central banks and Asian consumers.
Rhona O’Connell, an analyst at StoneX Financial, said:
Virtually every time there is marked equities weakness, investors who hold gold as a risk hedge will liquidate part of their holdings to raise liquidity against any potential margin calls.
When the dust settles, they almost invariably buy it back.
With that, I am heading off and I will leave you in the capable hands of my colleague Daniel Woolfson, who will keep you updated on the markets.
The rebound the US services sector should “soothe” concerns that the US jobs market has “taken a sudden turn for the worse”, according to economists.
The ISM services PMI survey showed a rise in the headline services index to 51.4, from June’s pandemic-era low of 48.8. 
However, the latest rise is still only “historically consistent with GDP stagnating at best,” according to Stephen Brown at Capital Economics.
The consultancy’s deputy chief North America economist said:
Ultimately, the rebound in the ISM services index in July is hardly consistent with the economy or labour market falling over a cliff, as many seem to fear following the weaker July Employment Report. 
Notably, there was no mention of the dreaded R-word from respondents in the accompanying press release either, which struck at worse a neutral tone.
Finally, the Fed is unlikely to be too concerned by the modest rise in the prices paid index to 57.0, from 56.3, although at the margin at least it lends some support to our forecast that the Fed will take a more gradual approach to loosening than what markets are now pricing in.
🇺🇸 @ISM Services rebounds to 51.4 in July noting “steady, stable” business conditions: reassuring amid #market selloff✅Activity 54.5 (🔼4.9pt) ✅New Orders 52.4 (🔼5.1pt)✅Employment 51.1 (🔼5.0pt)⛔️Supplier Deliveries 47.6✅Backlogs 50.6 (🔼6.6pt)🆒Inflation 57 (🔼0.7pt) pic.twitter.com/KUPVDJoY3h
The US services sector grew slightly more than expected, a closely watched survey showed, partially allaying concerns that the world’s largest economy is heading for recession.
The ISM services PMI survey rose to 51.4pc in July, putting the sector back into growth after falling to contraction territory of 48.8 the previous month. 
The reading was also slightly higher than economists’ predictions of 51pc and helped to slightly ease losses on Wall Street.
However, stock markets are still heavily down, with the Dow having fallen 2.5pc, the S&P 500 dropping 3.2pc and the Nasdaq Composite 3.9pc lower.
Steve Miller, chair of the Institute for Supply Management services committee, said:
Survey respondents again reported that increased costs are impacting their businesses, with generally positive commentary on business activity being flat or expanding gradually. 
Comments continued to express a wait-and-see attitude regarding the upcoming presidential election, with one respondent expressing concern over potential increases in tariffs. 
Many panelists noted a return to more stable supply chain performance, albeit with higher costs.
Nearly everything on Wall Street is tumbling as fear about a slowing US economy worsens – but economists warn not expect that emergency interest rate cut being wagered on by money market traders.
 Brian Jacobsen, chief economist at Annex Wealth Management, said:
The Fed could ride in on a white horse to save the day with a big rate cut, but the case for an inter-meeting cut seems flimsy.
Those are usually reserved for emergencies, like Covid, and an unemployment rate of 4.3pc doesn’t really seem like an emergency.
He added that the Fed could respond by “stopping” its sales of US Treasuries and other bonds, which could put less upward pressure on longer-term yields. 
He said: “That could at least by a symbolic action that they’re not blind to what’s going on.”
Global stock markets have been in panic mode since last week, when a weak US jobs report triggered something called “the Sahm Rule”, a reliable indicator that the economy is in recession.
The indicator is named after its creator, Claudia Sahm, a former Federal Reserve and White House economist.
The rule indicates a recession has started when the three-month moving average of the US unemployment rate is 0.5 percentage points or more above its lowest during the previous 12 months.
The threshold was crossed when US government data showed on Friday that the unemployment rate had hit 4.3pc, its highest level since October 2021.
The Sahm Rule reading reached 0.53 points in July, according to the Federal Reserve Bank of St Louis.
Florian Ielpo, head of macroeconomic research at investment manager Lombard Odier, said the rule was a “purely empirical” indicator with “no theoretical basis”.
But the markets “have clearly drawn the conclusion that there will be a recession”, he added.
Investors are worried that the US Federal Reserve has waited too long to cut interest rates, which sit at a 23-year high and were raised to tame soaring inflation.
The US is in #recession according to the well known and historically accurate ‘Sahm Rule’, which has a reading of 0.53 today — above the 0.50 threshold for a recession reading. pic.twitter.com/4FoV03nUas
The Sahm Rule Recession Indicator triggered in July; Fed Chair Powell said it’s not an economic rule, but a statistical regularity. In any event, here we are. pic.twitter.com/ZhSHx2qbJt
The so-called Magnificent Seven group of stocks which have powered US markets higher this year have suffered their worst drop on record.
Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla dropped by a combined 9pc in early trading, according to a Bloomberg index tracking the megacap companies.
It is the worst day for the gauge since it began in 2015.
It is not just megacap stocks on Wall Street that are being hit in the sell-off.
The Russell 2,000 index of smallcap companies has plunged 7.9pc to 2,012.75 – its lowest level in seven months.
Nasdaq 100 just 15% down from all-time high. The market panic feels like a crash of 20% or more. pic.twitter.com/gvGQtYrWgg
Wall Street stocks plunged as trading began amid intensifying concerns that the US economy is heading for recession.
The tech-heavy Nasdaq Composite plummeted by 6.4pc following a 2.4pc fall on Friday as panic about a global economic downturn gripped markets.
The Dow Jones Industrial Average fell 2.7pc while the broader S&P 500 sank by 4.2pc as US stocks followed sharp sell-offs in Europe, where the FTSE 100 has fallen 2.8pc and the Dax in Germany has dropped 3.3pc.
Economists at Goldman Sachs put the probability of a US recession in the next year to 25pc, increasing their forecast from 15pc.
It comes after data on Friday showed the American economy added far fewer jobs than expected, with unemployment hitting its highest level since October 2021.
All eyes are on what happens on Wall Street shortly when trading begins.
Neil Birrell, chief investment officer at Premier Miton Investors, said: 
Clearly those jobs numbers have absolutely freaked everybody out. 
It might well be that even the Fed thinks that we’ve got to do something to provide markets stability, and that could be an out-of-cycle rate cut. 
To do it a week after its policy meeting would be extraordinary, based on one data point.
Former US president Donald Trump has warned about “terrible” jobs numbers and “crashing” stock markets ahead of the opening bell on Wall Street:
The sell-off in global stocks is “excessive”, some economists have said, as traders prepare for sharp falls when markets open on Wall Street.
George Lagarias, chief economist at Forvis Mazars, said he is “not convinced” that fears of a US recession are driving markets lower.
He said:
While they may well continue to correct in the next few days or weeks, we don’t see a fundamental case for a broader equity re-rating.
The selloff mainly focused on the Magnificent Seven, and especially Nvidia, Microsoft and Amazon. 
Nvidia in particular, has shed more than 20pc of its market value since the 10th of July. Despite the drop, the stock is still double its value at 2023 year-end, and trading 40x its forward earnings.
Other economists have also tried to calm nerves about the sell-off:
Since 1928:The stock market has dropped 5% or more in 94% of years & 10% or more in 60% of yearsThe Nikkei’s crash isn’t normalbut freaky outlier events that fuel selloffs in a healthy economy with growing profits and low unemployment are pic.twitter.com/jZyDMeN2ac
Interesting how sentiment has pivoted after the #jobsreport. Volatility (VIX) reaching highest since Covid this morning as global selloff intensifies. The market panic appears excessive. Imo this is more an issue of #Fed behind the curve rather than pronounced economic weakness pic.twitter.com/DWl9Mqv078
In London, Hargreaves Lansdown has said talks remain “ongoing” over a potential £5.4bn takeover as the deadline to seal the deal was extended again.
The investment platform received a takeover proposal from a consortium led by CVC in June.
The group of bidders is led by buyout giant CVC, alongside Nordic Capital, and Platinum Ivy, a wholly-owned subsidiary of the Abu Dhabi Investment Authority.
Last month, an initial July 19 deadline to strike a deal was extended to August 5 to hold further talks.
Today, Hargreaves Lansdown told shareholders “discussions with the consortium remain ongoing” as it seeks to iron out the details of a possible deal.
Its share price has fallen 4pc.
A quick bit of corporate news for you: French banking giant Societe Generale has struck a deal to sell its UK and Swiss private banking arms in a deal worth around €900m (£770m).
The Paris-based bank – one of Europe’s largest with about 126,000 staff in countries around the world – said it wants to slim down to become more streamlined and efficient.
The deal will see the two divisions, which have combined total assets of €25bn (£21bn), taken over by Swiss bank Union Bancaire Privee (UBP), which specialises in wealth management.
Societe Generale said the sale forms part of its plans to target a “streamlined, more synergetic and efficient business model, while strengthening the group’s capital base”.
It will create more space to focus on its high-net-worth customers across its private banks in France, Luxembourg and Monaco.
Its shares were down 3.7pc in Paris.
The Swiss franc rose to its highest level against the euro in nearly a decade as heavy losses in stock markets drew investors to the safe-haven currency.
The franc has risen some 3.5pc against the euro since the US Federal Reserve held interest rates last week.
The franc rose as high as 1.0856 euros today, its highest since January 2015, when the Swiss National Bank (SNB) scrapped a cap it had against the euro.
It was last up 1pc against the pound.
The SNB has cut interest rates twice this year amid concerns among Swiss manufacturers that the strength of the currency was putting pressure on their key export business.
UBS economist Maxime Botteron said at a time when the SNB is cutting interest rates, the franc’s appreciation over the last few days could prompt foreign currency purchases by the bank.
A $2bn (£1.6bn) deal to buy North Sea oil engineer Wood Group has collapsed amid global market turmoil.
Our reporter Michael Bow has the details:
Dubai-based buyer Sidara stunned the market on Monday after walking away from the landmark deal, citing the recent rout in global shares and rising tensions in the Middle East. 
The company said: “Sidara confirms that in light of rising geopolitical risks and financial market uncertainty at this time, Sidara does not intend to make a firm offer for Wood.” 
Shares in Aberdeen-based Wood, which offers outsourcing services to major North Sea producers, slumped 37pc to 123p after Sidara ended its pursuit. 
This chart shows how its share price has been hit.
Wall Street banks are predicting there is as much as a 50pc chance that the US will fall into recession after the Federal Reserve left interest rates unchanged at their 23-year highs last week. 
Fed funds futures traders are pricing in a 100pc chance that rate setters will cut borrowing costs from their present range of 5.25pc to 5.5pc to a range of 4.75pc to 5pc in a bid to calm jitters about the health of the US economy.
Analysts at Goldman Sachs estimated a 25pc likelihood of a US recession, while JPMorgan were even more bearish, assigning a 50pc probability.
Economist Michael Feroli said:
Now that the Fed looks to be materially behind the curve, we expect a 50 basis point cut at the September meeting, followed by another 50 basis point cut in November. 
Indeed, a case could be made for an inter-meeting easing, especially if the data soften further.
The value of the pound has been “undermined” by the possibility of a US recession as investors fled to safe havens.
Sterling was down 1.5pc against the Swiss franc, a classic safe-haven, at 1.081 francs, and has slumped 0.7pc versus the euro, which is worth 85.8p.
The pound was down 0.4pc against the dollar, despite traders wagering that there is a 90pc chance that the Federal Reserve will cut interest rates by half a point in September to ward off further economic deterioration.
The Federal Reserve held interest rates at 5.5pc to 5.25pc last week, while the Bank of England announced its first rate cut in four years on Thursday.
The pound has been one of the worst performing major currencies over the last week, in part because of the Bank of England’s rate cut, but also as investors have trimmed their exposure to the currency.
Sterling has fallen 0.8pc against the dollar in the last five trading days, compared with a 1.2pc rise in the euro and a 0.5pc rise in the New Zealand dollar.
Short-term investors also reduced their bets on the pound rising by $2.53bn to $8.95bn, according to data from the US markets regulator.
MUFG strategist Lee Hardman said sterling had been left “vulnerable to further weakness in the near-term”, adding: “The pound has been undermined by the marked deterioration in global investor risk sentiment.”
Stock markets have plummeted as traders fear a potential recession in the US. 
Our senior money writer Fran Ivens sets out the steps to protecting your pension and investments:
Weaker than expected jobs and manufacturing figures in the US have raised concerns the Federal Reserve has left it too late to begin cutting interest rates without damaging the world’s largest economy, raising bets on a potential emergency rate cut.
Daniela Hathorn, senior market analyst at Capital.com, said: “A lot of it comes from faith that the Federal Reserve has gone a little bit too far with its monetary policy in terms of keeping rates restrictive for too long. 
“That negative sentiment has spilled over into other markets.”
Tokyo’s Nikkei 225 index closed down 12.4pc and suffered its biggest ever points loss overnight, recording its worst percentage fall since the fateful Black Monday trading session in October 1987.
Read what to do during the sell-off.
The Federal Reserve has been urged by economists to calm the stock market sell-off by giving a stronger signal of its intentions on interest rate cuts.
Policymakers decided to leave US interest rates at 5.25pc to 5.5pc on Wednesday – their highest level since 2001 – with chairman Jerome Powell signalling that the Fed could begin reducing borrowing costs in September.
However, global stock markets have suffered a sharp downturn amid fears that this will be too late to avoid a recession in the world’s largest economy, after data last week showed weakening in its jobs market and manufacturing sector.
Kallum Pickering, chief economist at Peel Hunt, said:
It is far from clear whether the softer US data are consistent with a mere moderation in US growth, which would be a benign scenario, or a genuine hard landing and unfolding recession. 
Market participants will be scrutinising every incoming US data print – surprises in either direction could lead to shifts in sentiment and revaluations within and across markets. 
Financial markets are skittish and expectations can become self-fulfilling. Abrupt losses of confidence, even if they are not grounded in an actual deterioration in fundamentals, can have negative consequences on the real economy. 
An early verbal intervention from the Fed and other central banks can help to contain such risks.
Growth in the UK’s services sector picked up last month, posing a potential headache for the Bank of England amid pressure to cut interest rates.
Companies recorded the strongest levels of demand for more than a year, the S&P Global UK services PMI survey showed.
The survey scored 52.5 in July, increasing slightly from 52.1 in the previous month, which was was marginally ahead of economists’ predictions and higher than the 50 threshold separating growth fron contraction for the ninth month in a row.
The Bank of England is coming under growing pressure to cut interest rates amid the stock market sell-off, with traders betting there is a 59pc chance that policymakers will cut borrowing costs for a second meeting in a row next month.
Joe Hayes, principal economist at S&P Global, said “there continues to be sluggish progress on inflation”. He said: 
The positive takeaway is that price pressures, both regarding input costs and output prices, are at their lowest since early 2021. 
The concern, however, will be that the respective PMIs are still well above their prepandemic trends, and these are the benchmarks for the Bank of England to hit before claiming the fight against inflation is over.
US stock indexes were sharply down in premarket trading as fears of the United States slipping into a recession rippled through global markets.
Stock markets from Asia to Europe took a beating and bond yields slid as investors rushed to safe-haven assets and investors bet the US Federal Reserve would need to cut interest rates quickly to spur growth.
All megacap and growth stocks, the main drivers for the indexes hitting record highs earlier this year, fell sharply in premarket trading.
Apple Inc slumped 7.3pc after Berkshire Hathaway slashed its stake in the iPhone maker by almost 50pc, suggesting that the billionaire investor is growing wary about the broader US economy or stock market valuations that have gotten too high.
Nvidia fell 6.8pc after reports of a delay in the launch of its upcoming artificial-intelligence chips as a result of design flaws.
A weak jobs report and shrinking manufacturing activity in the world’s largest economy, coupled with dismal forecast from the big technology firms, pushed the Nasdaq Composite into a correction last week.
In premarket trading, the Dow Jones Industrial Average was down 1.6pc, the S&P 500 was down 2.6pc and the Nasdaq 100 had fallen 4.2pc.
Wall Street’s so-called “fear index” has hit a four-year high as traders race to sell-off stocks over fears that a US recession could trigger a global downturn.
The Chicago Board Options Exchange Volatility Index – used to gauge turbulence in stock markets – has surged to its highest level since the onset of the pandemic.
The sharp spike in the “Vix index” comes as European and Asian markets sink, with Wall Street on track to follow suit.
Megacap tech stocks look likely to be worst hit, with Nvidia down 8.2pc in premarket trading, Apple down 7pc and Meta and Tesla down more than 4pc each.
Pierre Veyret, technical analyst at ActivTrades, said: 
This price action isn’t technical but is instead seen as fear trading, where investors reduce their risk exposure and seek safety, hence the current rally in treasuries and on the Vix index.
This stance will likely prevail until investors witness clear bullish catalysts, provided by strong evidence of US economic resiliency or solid dovish hints in the next batch of speeches from Fed officials.
China stocks closed lower as fears of a US recession sent investors fleeing.
The Shanghai Composite index finished down 1.5pc at 2,860.70, while the blue-chip CSI300 index was down 1.2pc.
Growth in China’s services activity accelerated in July – its 19th straight month of growth – but was not enough to avoid a stock sell-off in  the world’s second-largest economy.
Investors have rushed into safer bonds after bleak US economic data triggered worries about whether the Federal Reserve has left it too late to begin cutting interest rates.
Bond markets have rallied in the face of the global stock market sell-off, sending borrowing costs plummeting for governments around the world.
The yield on two-year UK gilts, which are sensitive to interest rate cuts, have fallen sharply to 3.52pc – down from 3.86pc a week ago and a fall from 4.1pc over the last month.
Two-year US Treasury yield were down from 4.4pc a week ago to 3.81pc.
The yield on bonds are the return the government promises to pay buyers of its debt and it falls when prices of bonds rise amid high demand.
The 10-year UK gilt yield was down to 3.82pc from 4.05pc a week ago. 
Oil prices have fallen further after closing at its lowest point in seven months last week amid the sell-off in financial markets.
Brent crude, the international benchmark, was down 0.8pc towards $76 a barrel — erasing this year’s gains — after closing at its lowest since early January on Friday. 
It has joined the global stocks sell-off amid fears that a US recession could impact demand for oil around the world.
The market is also bracing for a possible attack from Iran against Israel in retaliation for the killing of senior leaders in Hezbollah and Hamas.
Warren Patterson, head of commodities strategy at ING, said: “While there are growing demand concerns, geopolitical risks continue to hang over the oil market.”
US-produced West Texas Intermediate was down 0.9pc below $73 a barrel.
Shares in the world’s biggest companies are on track to plummet when trading begins in New York this afternoon.
Apple was down 6.6pc in premarket trading, while the chipmaking giant Nvidia plunged 8.8pc.
Excitement around artificial intelligence had sent Nvidia shares 136pc higher so far this year before the sharp sell-off which began on Friday.
Today, the tech-heavy Nasdaq 100 is on track to fall 3.6pc when markets open, while the broader S&P 500 is down 3pc in premarket trading and the Dow Jones Industrial Average 1.5pc.
The FTSE 100 plunged to hit its lowest in over three months as recession fears in the United States triggered a global sell-off.
The blue-chip FTSE 100 index fell as much as 2.5pc to its lowest since April and on track for its worst day since March 2023.
Meanwhile, the mid-cap FTSE 250 index was down 3.5pc, after clocking its worst day since September 2022 on Friday.
Friday’s data showed a sharp slowdown in US job growth, heightening fears of a deterioration in the American labour market and a potential recession, pushing investors to raise bets on a half-point cut in September by the Federal Reserve to rescue the economy.
In London, car and parts companies were the worst hit with a 4.7pc decline, while precious metal miners were 4.4pc lower despite stronger gold prices.
Financial stocks like banks and life insurers declined 3.9pc and 4.3pc respectively.
In corporate news, Wood Group fell over 38pc to the bottom of the FTSE 250 after Dubai’s Sidara said it was walking away from its plan to buy the North Sea engineering and oilfield services company.
Daniela Hathorn, senior market analyst at Capital.com, said: “A lot of it comes from faith that the Federal Reserve has gone a little bit too far with its monetary policy in terms of keeping rates restrictive for too long. That negative sentiment has spilled over into other markets.” 
European shares have suffered their worst drop in two and a half years amid a global sell-off in equities on fears of a slowdown in US economic growth.
The pan-European Stoxx 600 index was down as much as 3.2pc to 481.73 points, taking it to its lowest since February after its steepest decline since the early days of the Ukraine war in March 2022.
The index is coming off its worst week in nearly 10 months and fell below the 500-mark for the first time since April 15.
Fears that the US could be heading towards a recession have sent investors dashing away from risk assets.
All major European stock indexes opened in the red.
Financial sectors were hit the most on the day. Banks lost 4.2pc, financials services shed 3.6pc while and the tech sector slipped 5pc.
Among individual stocks, Galderma gained 2.2pc after L’Oreal said it would acquire a 10pc stake in the Swiss skincare company from a group of major shareholders.
OCI Global jumped 7.3pc after Woodside Energy said it would acquire the Dutch chemicals maker’s clean ammonia project in Texas for $2.4bn (£1.8bn). 
Traders are ramping up bets on an emergency interest rate cut by the US Federal Reserve in an effort to quell a sell-off in global markets.
Money markets are wagering that there is a 60pc chance that policymakers will announce a quarter of a percentage point rate cut within a week.
Traders are now pricing in that the Fed will announce a half a point rate cut at its next meeting in September, which would reduce interest rates from a range of 5.5pc to 5.25pc to 5pc to 4.75pc.
The FTSE 100 has plunged in early trading after the global stock market rout deepened, with Japan’s Nikkei 225 index suffering its worst day since 1987.
London’s blue-chip index was as much as 2.2pc down after the open on Monday, losing as much as 177 points to hit 7,997.61, with equities across the board falling into the red.
It is the sharpest fall in London’s benchmark index since July last year.
It comes after US jobs data sparked a global market sell-off at the end of last week, after investors were spooked at the prospect of a potential American recession.
Analysts said that they feared the US Federal Reserve had made a mistake by not cutting interest rates last week, and might now be too late to hold off a recession.
Japan’s Nikkei lost nearly 13pc on Monday to hit a seven-month low in its worst trading day since Black Monday.
European stock markets tumbled at the start of trading  following massive sell-offs in Asia on fears of recession in the United States that has caused technology stocks to plunge.
The Dax in Frankfurt sank more than 3pc while the Cac 40 in Paris slumped 2.6pc.
Elsewhere, Milan plunged 4pc and Madrid gave up 2.8pc.
The FTSE 100 plunged as trading began amid fears that the Federal Reserve will not be able to cut interest rates fast enough to avert a recession.
The UK’s benchmark stock index sank by 2pc to 8,010.60 while the midcap FTSE 250 plummeted by 5pc to 20,389.90.
Bitcoin plunged amid the global markets sell-off, which has seen a sharp sell-off in technology.
The world’s largest cryptocurrency fell by 11.6pc to $51,410, adding to a 13.1pc drop last week.
It has suffered its worst fall since the so-called “crypto winter” when the FTX exchange imploded in 2022.
Meanwhile, Ether has shed over a fifth of its value before paring some of the slide to change hands at $2,360. Most major coins were deeply in the red.
Khushboo Khullar, a venture partner at Lightning Ventures, said the broad stock slump had caused some “panic,” spurring investors to rush for liquidity to settle margin calls. 
Bitcoin remains about 23pc higher this year, compared with a 19pc climb in gold and an 8pc jump in global stocks.
#Bitcoin is down more than 16% in the past 24 hours. This is a stark reminder that Bitcoin is, by far, the asset class with the highest #volatility, which must be considered when constructing a portfolio that includes Bitcoin.(The Bitcoin Emergency Brake in the Blokland Smart… pic.twitter.com/5b6jDkNgEr
Traders are ramping up bets on rapid interest rate cuts around the world in an effort to avoid a recession and stabilise global stock markets.
Money markets are pricing in a 83pc chance that the US Federal Reserve will cut rates by half a percentage point at their next meeting in September, with a quarter of a point rate cut priced in.
Traders also think there is a 68pc chance that a half point cut in September will be followed by a half a point cut in November.
Derivatives markets indicate there is a 65pc chance that the Bank of England will cut interest rates by a quarter of a point at their next meeting in September.
A rate cut is priced in for the European Central Bank at its next meeting in September, with a 51pc chance of a half a percentage point cut.
European stock markets are on track to suffer steep declines when trading begins shortly.
The FTSE 100 in London is down 1.3pc in premarket trading, but it far worst losses are on the cards among its peers on the continent.
The Dax in Frankfurt is on track to fall by 1.9pc when trading begins, while the Cac 40 in Paris is lower by 2pc.
The FTSE MIB in Milan has plunged by 3.1pc in premarket trading.
Japan’s yen hit its highest levels against the dollar since January as investors sought out safe havens after weak US jobs data stoked recession worries and expectations of deeper interest rate cuts by the Federal Reserve.
The selling continued overnight, with US Treasury yields falling further, stock indexes in the red, bitcoin dumped and the dollar losing ground mainly to the yen.
Investors have been driven away from stocks, oil and high-yielding currencies after Friday’s employment data, which also came after a string of weak earnings reports from large technology companies and heightened concerns over the Chinese economy.
The yen, traded at 143 against the dollar, up 2.3pc to levels last seen on January 2. It rose as far as 142.20.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said:
The market pricing has a 50 basis point rate cut by the Fed at its September meeting, which I think will be too much.
The US economy is showing signs of slowdown, but it’s not as bad as the market is pricing in.
Japan’s Nikkei 225 share index plunged more than 12pc as investors worried that the US economy may be in worse shape than had been expected dumped a wide range of shares.
The Nikkei index shed 4,451.28 to 31,458.42. It dropped 5.8pc on Friday and has now logged its worst two-day decline ever, dropping 18.2pc in the last two trading sessions.
At its lowest the Nikkei plunged as much as 13.4pc. Its biggest single-day rout was a drop of 3,836 points, or 14.9pc, on the day dubbed “Black Monday” in October 1987. 
It suffered an 11.4pc drop in October 2008 during the global financial crisis and fell 10.6pc during the aftermath of massive earthquakes and nuclear meltdowns in northeastern Japan in March 2011.
Share prices have fallen in Tokyo since the Bank of Japan raised its benchmark interest rate on Wednesday. The benchmark is now about 3.8pc below the level it was at a year ago.
The wave of selling hit all sorts of companies.
Toyota’s shares dropped 11pc and Honda lost 13.4pc. Computer chip maker Tokyo Electron dived 15.8pc and Mitsubishi plunged 18.4pc.
OUCH! Japan’s Topix index crashed 12.2%, the biggest daily loss since the 1987 crash. pic.twitter.com/CmoZTFMYfK
The global rout in stock markets has deepened as Japan’s benchmark index suffered its worst day since Black Monday amid fears of a US recession.
Tokyo’s Nikkei 225 closed down 12.4pc and suffered biggest ever points loss overnight – also taking its worst hammering in one day since the fateful trading session in October 1987. 
The index is heading for its worst two-day decline on record after dropping 5.9pc on Friday as investors sold heavily over worries the American economy may be in worse shape than had been expected.
European and US markets are expected to follow suit when trading begins later as investors raced to put their money into safe havens like the yen and Swiss franc.
Weaker than expected jobs and manufacturing figures in the US have raised concerns that the Federal Reserve has left it too late to begin cutting interest rates without damaging the world’s largest economy.
Tan Boon Heng of Mizuho Bank in Singapore said: “The scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here.” 
Thanks for joining me. Share markets tumbled and bonds rallied in Asia over fears the United States could be heading for recession.
Japan’s Nikkei closed down 12.4pc and suffered its biggest ever points loss, with European markets expected to follow suit.
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Tokyo stocks closed down more than 12pc as they were battered by a resurgent yen and weak US jobs data that fuelled fears of a recession in the world’s largest economy.
The benchmark Nikkei 225 index plunged 12.4pc, or 4,451.28 points, to 31,458.42 – its largest points drop in history – while the broader Topix index lost 12.2pc, or 310.45 points, to 2,227.15.
The sell-off – mirrored across other Asian markets – followed another hefty day of losses on Wall Street, where heavyweight tech firms including Amazon and Microsoft took the brunt owing to worries an AI-fuelled rally this year may have been overdone.
The Taiex, the weighted index on the Taiwan Stock Exchange, was down 8.4pc at 19,830.88 by the close of morning trade, with chip giant TSMC off 9.3pc.
Elsewhere in Asia, Hong Kong’s Hang Seng index lost 0.2pc to 16,908.96 and the S&P/ASX 200 in Australia declined 12.8pc to 7,722.60.
The Shanghai Composite index, which is somewhat insulated by capital controls from other world markets, edged 0.1pc higher.