The global market crash has wiped hundreds of billions off the stock exchange and is set to halt tech sector expansion in Ireland, writes Craig Hughes.
Last Friday, disappointing jobs data in the US spooked investors into believing that the economy there could be headed for a recession and not the soft landing they had been banking on.
The impact was felt across the globe, with the FTSE 100 suffering its worst session of the year so far after the recession concerns sparked a global sell-off.
Japan’s Nikkei index also suffered its biggest crash since its 1987 ‘Black Monday’ loss, down 12% at closing.
London’s main financial markets followed suit and stayed in the red throughout the day as multinational firms were particularly weak.
Wall Street’s top indexes opened heavily lower thanks to market concerns over Bureau of Labour Statistics non-farm payroll data published late on Friday, with economists raising predictions that the US could witness a recession.
All eyes will be on the European Central Bank’s next meeting in September to see if there’s any reprieve in interest rates, after just one cut so far this year.
ECB president Christine Lagarde said in July at their last meeting that what could happen next in terms of other possible cuts was “wide open”.
Chris Beauchamp, chief market analyst at IG, said: “2024 has been a quiet year for markets in terms of actual volatility, so today’s slump in the US feels much worse than it actually is when put into context.
“Already there are a number of commentators calling for emergency US rate cuts, but at the moment this is still a growth scare.”
Meanwhile, sterling dropped as it followed three consecutive weeks of decline with another weak session, amid stronger-than-expected activity in the services sector.
The pound was down 0.27% at 1.276 US dollars, and was also down 0.72% at 1.164 euro.
Economist Austin Hughes said he expected Ireland to be relatively sheltered from the stock market fallout.
He added: “It is a clearing of the air, the US economy was always going to weaken after trade increase and the run it has.
“I don’t see apocalyptic event, more of a pause to allow the global economy regain balance in terms of inflation and activity.”
However, Mr Hughes said the impact domestically will be a halting in plans for expansion in the tech sector, which has been hit by the crash.
He explained: “I think it [the market] will be noisy for the next while, and it will lead to the tech sector scaling back on expansion.
“That is not a huge issue for us given we’re currently at maximum employment.”
Mr Hughes said the domestic economy will also be buoyed by the Budget in October, which is expected to put more money back into consumers’ pockets.
He added: “It’s not the end of the world and probably [happening] at a time when domestic spending is picking up and [the] Budget [is] putting more money into the pockets of people.”
Mr Hughes said the slowdown is likely to put further pressure on the ECB to cut interest rates in September.
The economist added: “A slowdown is going to lead to easier monetary policy which should help financial conditions, unless it is accompanied by stagnation.
“If there is a slowdown it tends to lead to lower interest rates, unless something extraordinary with inflation; I don’t see any concern for interest rates.”
He added that speculation is building that the next interest rate cut in September could be as high as 0.5 percentage points in light of the jobs numbers released last week, which he said provided “ammunition” to cut interest rates further.
An internal briefing note for the then Minister for Finance Michael McGrath on May 15 warned of the “increasing” international risks to the Irish economy.
