It seems irrational that a single data release in the US could set loose a kaleidoscope of butterflies in global financial markets, from New York, to Tokyo, Mexico to Sydney. In just a few days since that US jobs number was released, however, chaos has erupted in global markets.
The US sharemarket, after a massive surge since the AI frenzy gathered pace late last year, was vulnerable to any bad news and the centrality of US financial markets to global financial flows ensured that volatility in those marketsThe release of the employment data, moreover, coincided with the Bank of Japan’s decision last week to lift Japan’s interest rates and wind back its long-running purchases of Japanese government bonds.
Since peaking at record levels less than a month ago, Japan’s sharemarket has fallen about 25 per cent, with a near-20 per cent decline since the start of this month. In the absence of data to the contrary, the Fed is more likely to stick to its own expectation of a 25 basis point cut in September and maybe another one or two of similar size by the end of the year.