panic

Macroeconomic factors and data from the American labor market indicating a possible recession in the US are some of the reasons for the strong declines on stock exchanges, Pekao Bank Chief Economist Ernest Pytlarczyk told PAP. He pointed out that the panic on stock exchanges abroad has an impact on the Warsaw market.

Stock markets in several Asian and European countries, as well as the New York Stock Exchange, recorded deep declines on Monday.

Ernest Pytlarczyk, chief economist of Pekao Bank, when asked about the reasons for the sell-off on global stock exchanges, pointed to a “large macroeconomic factor”. “First of all, we have known for a week that the report from the US labor market could provide such negative fuel for markets, (…) the focus was on the unemployment rate,” said Pytlarczyk.

He added that his bank’s report from a week ago indicated that “the Sahm rule, as recalculated based on Friday’s data, would probably indicate a recession, and that is what happened.” He also said that markets “received this report as very weak.”

Pekao’s analysis noted that analysts were surprised primarily by the increase in the unemployment rate in the US from 4.1% to 4.3%. This indicator has already increased by almost 1 percentage point from the cyclical minimum. According to Sahm’s rule, a recession can be said to occur when the 3-month average unemployment rate exceeds the minimum unemployment rate from the previous 12 months by 0.5 percentage points. This indicator has predicted all recessions in the US since the 1970s, with no false positive indications – it was noted.

Pytlarczyk added that other reasons for the declines on the stock exchanges include weak ISM data (an American indicator showing activity in the industrial sector) and the voice of the Federal Reserve, which “straightforwardly said that it was opening the door to interest rate cuts.”

The economist pointed to a very violent reaction in the Japanese yen and cryptocurrencies; he assessed that there had been a “huge increase in panic”. “The panic is known to be caused by both positioning and the fact that everyone is trying to liquidate positions faster. The fact is that macroeconomic factors also tend towards the fact that the Federal Reserve will be forced to lower interest rates,” the expert assessed.

“We had this delay of a dozen or so months, everyone wondered why real high interest rates do not cause any perturbations in the American economy (…). Sector after sector is starting to add to the fact that recession is very likely. Serious economists, serious economic teams have also revised their forecasts. Of course, still conservatively, because the probability of the forecast according to e.g. Goldman Sachs is below 50 percent, but this also happens,” Pytlarczyk said.

He admitted that the reason for the declines are also movements resulting from “a certain kind of positioning” and the current summer period. In his opinion, some influence on how the markets behave is related to their microstructure – that is, “who is left on these trading boards, and often it is such a cast that there are more young people.”

Asked whether the situation on foreign stock exchanges would have an impact on the Warsaw Stock Exchange, he stated that “it already has an impact.” He added that “this panic absolutely translates into what is happening in Poland, what the markets in Poland are pricing in.”

Asked whether Warren Buffett’s divestment of $75.5 billion in Apple shares had an impact on market turmoil, he said it was “just one of many pieces of information that’s coming in right now that’s just fueling this panic.”

Stock markets around the world recorded deep declines on Monday. The Kospi (Korean index – PAP) lost about 9.6 percent, and the Japanese Nikkei recorded a decline of about 12.4 percent. The Warsaw WIG20 lost 3.2 percent, reaching 2,266 points, and the mWIG40 fell by 3.79 percent, while the sWIG80 recorded a drop of 4.48 percent.

Wall Street fell on Friday after the U.S. Labor Department reported that the unemployment rate rose to 4.3%, the highest level since October 2021. U.S. employment outside the farm sector rose by 114,000 in July, a weaker-than-expected result. Economists had expected 175,000 new jobs in the period.

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