by Claude Chendjou

PARIS (Reuters) – Major European stock markets are expected to open sharply lower on Monday, with nervousness likely to prevail again ahead of the publication of service sector activity indices in Europe and the United States.

According to the first available indications, the Parisian CAC 40 is expected to lose 1.51% at the opening. The Dax in Frankfurt could fall by 1.36%, while the FTSE 100 in London is expected to drop by 0.85%. The EuroStoxx 50 index is expected to fall by 1.59% and the Stoxx 600 by 1.44%.

Risk aversion has dominated the markets since Thursday with the publication of the ISM manufacturing index in the United States, which reported an eight-month low of 46.8, in a context of a decline in new orders, raising fears of a darkening of the economic outlook.

“We have increased our 12-month recession probability by 10 percentage points to 25%,” Goldman Sachs analysts wrote in a note, adding that they now expect the US Federal Reserve (Fed) to cut rates by a quarter of a point in September, November and December.

The publication in the United States of the ISM services index at 14:00 GMT and the services PMI in Europe in the morning will confirm or deny the fear of a recession. Especially since in addition to the activity indices, the official report on American employment, published on Friday, showed a sharp slowdown in job creation in July, causing a collapse in bond yields.

A WALL STREET

The New York Stock Exchange ended down on Friday, its second consecutive session of decline, and the Nasdaq Composite confirmed that it was in correction territory, as investors worry about the weakening of the U.S. labor market.

The Dow Jones index fell 1.61%, or 648.32 points, to 39,699.65 points.

The broader S&P 500 lost 103.56 points, or 1.90%, to 5,343.12.

The Nasdaq Composite fell 434.25 points (2.53%) to 16,759.89 points. It is down 10% from its closing high in July.

Over the week, the S&P 500 fell 2.06%, the Nasdaq 3.35% and the Dow Jones 2.11%.

According to the CME’s FedWatch tool, expectations for a 50 basis point rate cut at the Fed’s September meeting have climbed to 69.5%, up from 22% in the previous session.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index fell 9.25% to 32,587.94 points, after hitting its lowest level since early January, extending the massive sell-off seen last week. The broader Topix fell 11.05% to 2,257.3 points.

The MSCI index of Asia and Pacific stocks (excluding Japan) lost 2.0%.

In South Korea, stocks fell for the second consecutive session on Monday, triggering a trading restriction for the first time since 2020 amid a rout in technology stocks.

The benchmark KOSPI index fell 8.09%, after dropping 3.7% on Friday, and is on track for its worst session since March 2020.

In China, the Shanghai SSE Composite fell 0.37% and the CSI 300 fell 0.21%, with nervousness prevailing despite activity in the services sector accelerating in July to 52.1 after 51.2 in June, according to the Caixin consultancy.

VALUES TO FOLLOW IN EUROPE:

CHANGES/RATES

The dollar fell by 0.40% against a basket of reference currencies, including the euro which advanced by 0.24%, to 1.0934 dollars, and the pound sterling which traded at 1.2802 dollars (+0.03%).

The safe haven yen is trading at 143.12 to the dollar (+2.33%), after hitting a high since January at 142.75.

The yield on 10-year US Treasuries fell 4.1 basis points to 3.7472%, its lowest since mid-2023. The two-year yield rose above the 10-year yield to 3.884%, a sign of a coming recession.

The yield on Japanese 10-year government bonds fell 17 basis points to 0.785% in trading, the lowest since April, as the market now expects the Bank of Japan (BoJ) to raise rates again.

OIL

The oil market is virtually flat, near an eight-month high, as fears of a recession in the United States offset those of worsening tensions in the Middle East that could affect supplies.

Brent fell by 0.20% to $76.66 per barrel and US light crude (West Texas Intermediate, WTI) by 0.34% to $73.27.

MAIN ECONOMIC INDICATORS ON THE AGENDA FOR AUGUST 5:

COUNTRY GMT INDICATOR PERIOD CONSENSUS PREVIOUS

FR 07:50 S&P/HCOB PMI index for July 50.7 50.7*

services (final)

S&P/HCOB Composite PMI Index July 49.5 49.5*

(final)

FROM 07:55 S&P/HCOB PMI for July 52.0 52.0*

services (final)

S&P/HCOB Composite PMI Index July 48.7 48.7*

(final)

EZ 08:00 S&P/HCOB PMI Index for July 51.9 51.9*

services (final)

S&P/HCOB Composite PMI Index July 50.1 50.1*

(final)

EZ 08:30 Sentix Index August -8.0 -7.3

GB 08:30 S&P/CIPS PMI July 52.4 52.4*

services (final)

S&P/CIPS Composite PMI Index July 52.7 52.7*

(final)

EZ 09:00 Producer prices June +0.4% -0.2%

– over one year -3.3% -4.2%

USA 2:00 PM ISM Services Jul 51.0 48.8

*first estimate

(Written by Claude Chendjou, edited by Blandine Hénault)

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