Global markets in turmoil over fears of US recession

The US Federal Reserve was accused last night of leaving interest rate cuts “too late” after weaker-than-expected jobs data fuelled fears of an economic slowdown in the world’s largest economy.

Official figures showed that only 114,000 jobs were created in July, lower than analysts’ estimates of 175,000.

The “disappointing” figures fueled fears that high interest rates had slowed growth and that the United States was heading for a recession.

This accelerated a global equity sell-off triggered by disappointing U.S. corporate earnings and gloomy economic data. Technology stocks were hit hardest as analysts warned that artificial intelligence is in a “bubble.”

This week, the Federal Reserve, the US central bank, kept borrowing costs at a 23-year high of 5.25 percent to 5.5 percent. The jobs data has increased pressure for it to cut interest rates in September – the last chance before the November election – and perhaps several more times before the end of the year.

But analysts warned that policymakers may have held borrowing costs low for too long to achieve a “soft landing” for the economy, which would see inflation fall back to target without a severe increase in job cuts.

Investors were already on edge after a survey this week showed a bigger-than-expected contraction in the U.S. manufacturing sector.

Russ Mould, investment director at AJ Bell, said: “The narrative has changed from rate cuts equating to good news to rate cuts equating to recession-avoiding measures.”

The S&P 500, the Dow Jones Industrial Average and the technology-focused Nasdaq Composite Index all fell deep into the red yesterday.

Shares of chipmaker Intel fell about 26 percent after the company revealed plans to cut 15,000 jobs after missing profit forecasts.

And Amazon fell nearly 10 percent on a warning that sales for the quarter will be below previous estimates.

Shares of chipmaker Nvidia fell 3% after hedge fund Elliott Management told investors the Korean firm is in a “bubble” and its artificial intelligence technology is “overvalued.” The prospect of a downturn in the world’s largest economy triggered a global selloff.

Japan’s benchmark Nikkei 225 index posted its second-biggest point drop ever, falling a staggering 5.8 percent.

London’s FTSE 100 fell 1.3 percent and the pan-European Stoxx 600 index fell 2.73 percent.

Ebury analyst Matthew Ryan said it was an “extremely weak US jobs report”.

“The data, while disappointing, has amplified fears that the Fed may have left it too late to start cutting US interest rates,” he said.

Richard Flynn, managing director of Charles Schwab UK, said: ‘Today’s figures may raise anxiety that central bankers have not acted quickly enough to cut rates, pushing the jobs market into a downward spiral.

“The Federal Reserve’s long-running rate-hiking campaign is very close to achieving its inflation target. Let’s hope that success doesn’t send the labor market into a tailspin.”

Steve Clayton of Hargreaves Lansdown said the jobs report would “increase speculation” that the Fed could hike more than 25 points in September and that further cuts this year were more likely. The report comes after the Bank of England cut rates from a 16-year high of 5.25 percent to 5 percent at a meeting on Thursday.