Asian stock markets plummeted, European and American equity index futures were hit hard, and market volatility and panic surged sharply! The VIX index, an indicator of US stock market volatility, rose 79% at one point, the largest increase since February 2018 and reached the highest intra-day level in four years. Traders are betting that the Federal Reserve will make an emergency rate cut within a week to rescue the market.

The recent stock market crash is widely believed to be influenced by poor performance of the US non-farm payroll data in July, increasing market recession concerns, Japan's 'three-piece suit' leading to a strong yen and exploding arbitrage transactions, and inadequate summer liquidity. The following are more interpretations of 'Black Monday' by institutions.

Please use your Futubull account to access the feature.

Shengbao Financial market strategist Charu Chanana said that last week the market sentiment underwent a huge change, from concerns about rising inflation to concerns about economic growth and potential economic recession. At present, US economic data remains the main influencing factor, and the assumption of a soft landing of the US economy has been questioned, which will lead to further corrections in the stock and interest rate strategies and the position of interest rate trading has already gone too far. However, the market's expectation of a Fed rate cut is also excessive. Considering that only one rate cut was shown in the June dot chart, and there are structural inflation factors, the expectation of four rate cuts this year seems a bit exaggerated.

Shengbao Bank's strategy team said,"The near-term outlook is currently driven by the risk management policies of many institutional investors." They added that the medium-term outlook will be determined by new macroeconomic data. Shengbao Bank is cautiously optimistic about the economy and believes that the possibility of economic recession is no more than 33%.

Weakness in the US economy and Middle East tensions prompted the yen to strengthen, dragging down Asian markets and stocks.

Sumitomo Mitsui Bank economist Ryota Abe said that the USD/JPY will turn to the 140-145 range due to weaker-than-expected US non-farm payrolls and Middle East tension. These two factors may drag down Asian markets because in this situation, market participants will hesitate whether to take risks. The stronger yen will also drag down the Nikkei index, as corporate profit margins will decline, and many companies did not expect the yen to rise so sharply and suddenly.

The market may have overreacted.

George Boubouras, research director of K2 asset management, said the market clearly worries about the recent softening of economic data. However, the reaction to last Friday's employment data seems excessive, as it was only a monthly data point. Three months of rolling data will provide better guidance. The momentum of recent US data has clearly slowed. Expectations of a 25 basis point interest rate cut in September were fueled by recent good core inflation data and Fed comments. Despite the volatility of the market and concerns that recent weak economic data will continue, overall profitability and credit conditions remain fairly good. Given that futures markets are predicting that the Federal Reserve will begin cutting interest rates before the US election (November 5), this may exacerbate some volatility before the election.

Recent stock selling may still have further room to go.

Daniel Tan, portfolio manager of Singapore's Grasshopper Asset Management, said that we have been cautious about chasing the global stock market boom before the big drop in early August, which was mainly driven by the surge in global technology stocks. Given the sharp rise in technology stocks earlier this year and investors seeking to sell assets to make up for losses, there may still be room for further stock sell-offs in the near future.

It may be a chain reaction triggered by the surge in market volatility.

Ben Bennett, head of LGIM's Asian investment strategy, said it appears that many profitable trades in the first half of this year are being closed, with some trades being closed faster than others. I don't think the Bank of Japan's interest rate hike or last Friday's US job report can justify such a big reaction, which may be due to the surge in market volatility forcing some profitable trades to be closed or stopped out.

More information is needed to understand the overall economic situation.

Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, said that the market was already tense before last Friday, but weak employment data exacerbated market volatility. However, it is difficult to know how disappointing the employment data really is given the distortion caused by Hurricane Beilul. We need other information to recreate the full picture, but we can be sure that we have not reached that level of panic. It is hard to believe that such market trends would occur in any other month.

Two things are affecting market pricing, and they are too extreme.

Lombard Odier's chief analyst Samy Chaar said that two things are affecting market pricing, one is the risk of an economic recession, which is the main concern, but in addition, there are some anxieties surrounding geopolitical issues, the possibility of retaliation by Iran and Hezbollah after an Israeli attack. First of all, the US economic situation is still acceptable because we have not seen an increase in layoffs or reduction in jobs. The data released last Friday was indeed disappointing, but we need to be open-minded about the possibility of next month's job growth adding around 0.15-0.17 million jobs. The current market pricing is moving to one extreme and then reversing to the other extreme, so market volatility has been extreme, because pricing has been extreme. The 3.70% yield on the 10-year US Treasury note seems a bit distant. Previously, 4.50% was a good buy level, and 3.70% is a good sell level.

Why might the Fed be forced to make an emergency rate cut?

Analysts say the Fed may be forced to cut rates before its next meeting in September to prevent a feedback loop between the market and the real economy that could lead to recession. Currently, everything is related to the market. The Bank of Japan raised interest rates, and then the United States announced weaker-than-expected economic data, prompting the already extreme global imbalances to loosen. In such periods, almost impossible things happen at lightning speed. The speed of economic deterioration did not suddenly accelerate-the employment data last week was not a clear sign of a recession, and the triggering of the 'Sam rule' simply shifted people's attention.

However, when these factors come to the fore, these positions will create opportunities to become reality, especially when geopolitical tensions escalate. Although today's economy may be no different from last week, the market is turning toward pricing the prospect of a recession, making a recession more likely to occur. The Fed may now be forced to cut interest rates this month to prevent asset price declines from spreading to the real economy and causing a recession.

Prepare to continue to buy with the new money arrived today

Duan Bin, Chairman of Orient Harbor, posted on Weibo saying that the pre-market situation looks scary, but I'm ready to continue buying with the new money that arrived today. Black Monday, why not throw a grenade? History has proven that buying in times of panic is never wrong. I still believe that the strongest voice of this era is artificial intelligence. Now it is not the Internet bubble in 2000. At that time, some companies had a PE of more than 100 times, while NVIDIA's latest estimate is PE30 times this year and nearly 20 times next year. If artificial intelligence is the future, I don't think such valuations can have a large downside, even if they fall, they will rise again. Meta and Google both have a PE of about 20 times, only Microsoft, Apple, and Amazon are slightly higher, but still acceptable. I don't think there should be a panic.

In addition, the current situation is not like that in 2008 when there was macroeconomic risk caused by subprime mortgage crisis. I believe that the interest rate reduction cycle and the artificial intelligence revolution will continue the bull market of the Nasdaq, which should be a historical cycle of more than ten years.

The Federal Reserve is facing new risks of an 'economic hard landing.'

Nick Timiraos, the 'Fed's megaphone', and journalists Paul Kiernan and the Wall Street Journal wrote that high inflation has been the focus of the Fed and the White House for the past two and a half years, and is seen as the most important economic challenge facing the United States. However, in the past week, the job market has become the focus of Washington's economic decision-makers. The unexpectedly flat job report for July released last Friday has caused market turmoil. If a broader economic slowdown becomes a reality in the coming months, it could also upend the already turbulent presidential campaign between former President Trump and Vice President Harris. Currently, investors are worried that the Fed's action is too late. The focus of discussions has shifted from when to cut interest rates to whether it should be 25 or 50 basis points next month, somewhat reminiscent of the eve of the 2001 and 2007 economic recessions.