Global stock markets experience "Black Friday", will there be another drop after non-farm payrolls?

Strategists on Friday urged investors to be cautious about selling global stocks, warning that buying now may be premature as stocks "appear poised for further declines."

The US stock market saw a sharp decline in early August, with new data sparking concerns about deteriorating economic prospects. The latest US initial jobless claims saw the largest increase since August 2023. As a barometer of US factory activity, the ISM Manufacturing Index came in below expectations at 46.8, indicating economic contraction.

Weak data has raised concerns among investors that the Federal Reserve may be lagging behind the situation in lowering interest rates to avoid a recession.

On Friday, the Nikkei 225 index fell by 5.8%, marking the largest single-day drop since March 2020, breaking below 36,000 points for the first time since January 26th this year. The TOPIX index in Japan fell by over 6%, the largest single-day drop since 2016; European stocks fell by over 1%, the Eurozone STOXX volatility index surged by 16% to reach 21.01, the highest level since mid-June; the VIX fear index rose by nearly 10% to 20.41, the highest level since April 19th.

Cedric Chehab, Global Country Risk Director at research firm BMI, stated that with deteriorating market sentiment, multiple factors are at play. However, he insists that "such corrections are absolutely normal." Chehab said in an interview on Friday, " The sell-off started about a week and a half ago, but accelerated in the middle of this week. This was triggered by several events."

He continued, "First, the hawkish stance of the Bank of Japan led to the collapse of short-term arbitrage trades. We also saw poor manufacturing data in the US and some concerning employment sub-indicators. Then, overnight, we saw significant volatility in earnings from some major companies. All of these factors helped drive the already quite expensive stock market further down."

Chehab noted that one factor some investors seem to have forgotten is that during the period from July to October, stock market volatility typically experiences seasonal increases. "Therefore, considering the historical patterns of calendar effects in the stock market, this is not entirely unexpected, especially after such massive rallies in the US stock market and other global stock markets."

When asked if the sell-off implies that investors should consider hitting the panic button, Chehab replied, "No, I don't think so. This is because from a technical perspective, there are many support levels including moving averages and key technical levels."

He added, "Such corrections are absolutely normal, especially when the market has been overly optimistic in the upward direction."

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, stated, "While AMP's view is that lower future interest rates may boost the stock market in the next six to twelve months, provided a recession is avoided, global stocks "appear poised for further declines, meaning buying into the dip now may be premature." The market is now turning its attention to the highly anticipated non-farm payroll report, with investors looking for clues about the pace and scale of future Fed rate cuts in the coming months.

Analysts at Deutsche Bank said in a research report published on Friday, 'In the past 24 hours, the risk markets have faced an increasingly unstable situation, with weak US data yesterday and disappointing overnight tech stock performance leading to a decline in risk appetite. The focus will now shift to today's US employment report.'

Rabobank interest rate strategist Evelyne Gomez-Liechti stated on Friday, 'The consensus expectation for the non-farm payroll report is a decrease to 175,000 new jobs in July, down from 206,000 in June. However, the bank's US economists expect an increase to 210,000 new jobs in July