Money blog: Global shares plummet; US recession fear; UK lender slashes mortgage rates - with one at 3.49% (2024)

We're pausing our live coverage for today - scroll back through to catch up on all the major developments as global stock markets tumbled amid fears of a US recession after an unexpected increase in joblessness across the pond.

Want to catch up at a glance? Here's a recap of events today:

• Stock markets around the world dropped sharply this morning - the UK's FTSE 100 was down more than 2%;
• Trillions were wiped off US markets when they opened at 2.30pm UK time;
  
• Some of the biggest losers in the US were Intel, Amazon, Arm Holdings, Nvidia and Tesla;
  
• The chances of a US interest rate cut rose as markets priced in a 90% chance of a reduction next month;
• The US turbulence was described by our NBC colleagues as a "complete U-turn" to a few weeks ago when "we were talking about the resilience of the US economy";
• And what it could all mean here in the UK - one lender said it would cut mortgage rates, with an analyst saying: "If the US sell-off continues, and given the current geopolitical backdrop, there is the potential for some deep cuts from major lenders this week and into next."

We'll be back tomorrow with live updates - good night.

By Sarah Taaffe-Maguire, business reporter

It would have been unthinkable to suggest that just days after deciding to hold interest rates that pressure would be mounting for an emergency cut in the cost of US borrowing.

Last week the US central bank, known as the Fed, announced it was making no change to interest rates, keeping them high to slow price rises.

But today the global stock market sell-off led to calls, and an expectation among some quarters, of an emergency intervention by the interest rate-setters at the Federal Reserve. Investors began to bet an emergency cut could be made.

Such measures are only taken in extreme circ*mstances. It would be the first time since March 2020, right at the outset of COVID-19 lockdowns, that such a move was taken.

The monetary policy regulator is mandated to do two things: keep inflation at 2% and have high levels of employment.

Throughout today commentators and officials have noted stock market performance is not a core concern of the Fed.

A 0.5 percentage point cut is now viewed by investors as the most likely course of action for the Fed's next meeting in September. Further cuts in November and December are also being priced in.

It comes amid worry the Fed misjudged the economic risk of keeping rates high, as it did in 2021 when pandemic-era inflation was increasing costs for consumers. The inflation increase was judged to be transitory but the effects of economic shocks on prices are still being felt in the US and across the world.

Away from the main news of the day - the global market plunge - to the home of English rugby.

Rugby chiefs have agreed to sell the naming rights to Twickenham Stadium, the home of the national rugby union side for the past century.

Sky News can reveal that the Rugby Football Union (RFU) has struck a deal with Allianz, the German insurer, to add its brand to one of the world's most famous rugby venues.

Sources said the RFU and Allianz were planning to rush through an announcement of the partnership after both were contacted by Sky News on Monday afternoon.

The value of the deal was unclear, although sources said it would represent a significant boost to the governing body's finances.

Read the rest of City editor Mark Kleinman's report here:

Major US stock indexes had made up some losses by the middle of the trading day around an hour ago.

The Dow Jones Industrial Average was down less than 800 points, or just short of 2%, after falling as much as 1,100 points earlier in the day.

The S&P 500 was down 2.2% after declining more than 3% earlier.

And the tech-focused Nasdaq was off 2.6% after declining as much as 4.3% to start the day.

Stocks were bolstered after a business-services report that signalled the US economy remained on firm footing.

Trump makes hay

The turbulence has been seized on by Donald Trump, who managed to turn it into a political issue and help get #kamalacrash trending on X.

On his Truth Social account, Trump posted "KAMALA CRASH!" followed quickly by "KAMALA CRASH vs. TRUMP CASH!"

Right-wing accounts on X including Libs of TikTok, RNC Research and End Wokeness were quick to follow as they attempted to portray the market drawdown as the result of Kamala Harris's recent surge in polls.

The turbulence in the US stock market isn't done yet.

Investors will be looking for signs of the market bottom, which is the lowest point in a market decline, or the turning point where selling stops and buying begins.

John Roque, the senior managing director of New York based asset management firm 22V, has picked out six signs to look out for that the market bottom is approaching.

1. The yen needs to stop strengthening against the dollar

The strengthening of the Japanese yen has ruined profits from carry trades, which is when investors sell something in one currency and buy something in another.

A settling down of the exchange rate, according to Mr Roque, would give carry-trade investors a "chance to catch their breath".

2. 'Leadership stocks need to stop going down'

High-performing and influential companies in the US stock market like Apple, Google, Amazon and Meta will need to see their stocks stabilise.

That would be a sign investors don't feel like raising more cash and are happy with the risk in their portfolios.

3. Stock indexes becoming oversold

A stock is regarded as oversold when it has suffered a sharp decline, and markets believe it may have become undervalued as a result.

When the Relative Strength Index (RSI) drops below 30, a stock or index is considered oversold.

4. Bond prices need to stop going up

The price of bonds moves inversely to interest rates - meaning they go up when the interest rates go low.

5. Changing rhetoric from the Federal Reserve

The Fed meets in Wyoming in Jackson Hole in late August to discuss the economy.

Talk coming out of that meeting about a rate cuts would "help investors' psyches", according to Mr Roque.

6. VIX volatility index peaking

The Cboe Volatility Index (VIX) is a key measure of expected volatility in the stock market and is often referred to as Wall Street's "fear gauge".

Once the VIX peaks and starts to fall down, market recovery can follow quickly. Currently, the VIX is up 245% over the past month.

Some financial analysts believe the market plunge in the US represents investors overreacting.

Economists, including Gregory Daco at EY, suggested today's events mark an outsized reaction to worry that the US Federal Reserve didn't lower interest rates fast enough.

"The market panic appears disproportionate," he wrote in a note to clients today.

"In our opinion, the core issue lies with the Fed being behind the curve, in action and in thought, rather than a significant economic downturn."

Furthermore, the chief economist at RSM US said it was a case of "classic market panic".

Joseph Brusuelas was also keen to point out that the market is not the same thing as the economy.

Stocks across the pond have recovered slightly from this morning's freefall but are still significantly down.

The US is "uncomfortably close" to a recession, a former Federal Reserve economist has said.

"We might not be there, but we're getting uncomfortably close," Claudia Sahm told Bloomberg TV.

The unexpected increase in US joblessness reported on Friday has been "in the past, consistent with 'early in recession'", she added.

Ms Sahm had a word of caution for policymakers, however, saying they should think before making quick decisions: "Calm is important at a moment like this."

The weak jobs report triggered the so-called Sahm Rule, an indicator of recession named after Ms Sahm.

A key measure of expected volatility in the US stock market surged to its highest level in more than four years today as global equities fell sharply.

TheCboe Volatility Index, or VIX, broke above 50 today, up from about 23 Friday and roughly 17 a week ago.

This is the highest the VIX has been since March 2020, shortly after the Federal Reserve'semergency actionsduring the COVID pandemic, according to FactSet.

The VIX rose as high as 85.47 in March 2020, according to FactSet.

A UK lender has said it will cut mortgage rates amid the market tumble we've been reporting on.

Effective from tomorrow, The Mortgage Works (TMW) will be reducing rates by up to 0.45 percentage points across its product range.

That means rates will start from as low as 3.49%.

New rates include:

• Two-year fixed rate (purchase and remortgage) buy-to-let at 3.49% with a 3% fee, available up to 65% LTV (reduced by 0.05%) 
• Five-year fixed rate (purchase and remortgage) limited company buy-to-let at 4.59% with a 5% fee, available up to 70% LTV (reduced by 0.25%)
• Five-year fixed rate (purchase and remortgage) limited company buy-to-let at 4.99% with a 3% fee, available up to 75% LTV (reduced by 0.30%)
• Two-year fixed rate (purchase and remortgage) limited company houses in multiple occupation (HMO) at 4.94% with a 3% fee, available up to 75% LTV (reduced by 0.45%)

Will other lenders follow suit?

"These sizeable cuts from TMW could set the tone among the wider lending community," Riz Malik, director at R3 Mortgages, told Newspage.

"If the US sell-off continues, and given the current geo-political backdrop, there is the potential for some deep cuts from major lenders this week and into next.

"However, lenders may wait to see if this is a short-term blip before they commit to repricing products and getting inundated with business during the holiday season."

We've reported extensively on forecasts for rate cuts here in the UK over the last year - and that is one of the big talking points in the US right now.

Just last week the Fed held the main interest rate stateside as the economy looked robust - but the odds have now dramatically shifted on the future path.

Markets are now pricing in a 90% chance of a cut in September.

In fact, after the lacklustre July jobs report on Friday, odds shifted quickly to a 75% chance of a 0.50% interest rate cut.

Our US partner network NBC News is reporting that markets are now pricing in 8.5% odds that the Fed could even cut by an oversized 0.75%.

"The immediate implication is that investors fear that the economy may weaken rapidly and want the Fed to cut rates aggressively to maintain economic growth," Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, wrote in a note today.

As we have been discussing, big movement on rates in the US could prompt similar action here in the UK as central banks tend to move in unison.