Source-This post on Global Economic Shifts has been created based on the article “On the stock market slump: Fall and correct” published in “The Indian Express” on 6 August 2024.
UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment
Context- The U.S. Federal Reserve kept interest rates steady but hinted at a new approach, balancing concerns about both inflation and employment. This shift raised the chance of a rate cut in September, which led to a rise in the Dow Jones index.
The US Bureau of Labor Statistics reported a smaller-than-expected increase of 114,000 non-farm payrolls in July and a rise in the unemployment rate to 4.3%, raising concerns about a weakening labor market and possible recession. Global markets are also worried about potential interest rate hikes by the Bank of Japan and rising tensions in the Middle East.
How did global markets react to the labor market data?
1) Labor Data -The labor market data led to a global market downturn. The Dow Jones dropped 1.5 percent, and Indian markets fell more than 1 percent. The BSE Sensex plunged 2.95 percent, the BSE Midcap fell 3.6 percent, and the small cap index dropped 4.21 percent. The Nifty VIX, a gauge of market volatility, surged by 42.2 percent.
2) Asian and European Markets – Other Asian markets also declined, with the Nikkei down 12.4 percent and the Kospi down 8.77 percent. European markets, including the DAX and FTSE, opened lower, and US stock futures fell as sell-off pressure grew.
Read More- Financial Market in India
What are some concerns affecting the Indian stock market specifically?
Concerns have persisted about high valuations in India’s small and midcap stocks. A recent Kotak Institutional Equities report noted a mix of optimism and euphoria in the market. Besides global issues, domestic factors like the RBI’s upcoming monetary policy meeting and new economic data could also affect market trends.
Question for practice
How did global markets react to the labor market data?
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