Global financial markets experienced a significant retreat from recent highs this week, driven by growing concerns over the health of the US economy and strong indications that the Federal Reserve is poised to cut interest rates sooner than anticipated. This widespread downturn, affecting both American and European equities, underscores a palpable shift in investor sentiment as new economic data paints a less optimistic picture.

Wall Street led the global decline, with traders actively divesting from stocks and the dollar while flocking to the perceived safety of government bonds. This sharp reaction followed the release of disappointing American jobs figures for July, which, alongside substantial downward revisions for May and June payrolls, ignited fears of an impending economic slowdown. The reported increase of 73,000 payrolls for July fell considerably short of the 104,000 analysts had projected, further fueling market anxiety.

Compounding these concerns, separate data from the manufacturing sector revealed a contraction at its fastest rate in nine months, with factory employment recording its worst monthly reading since 2020. Simultaneously, a consumer sentiment survey for July from the University of Michigan indicated that American households were less optimistic than economists had expected, adding another layer of apprehension to the already fragile economic outlook.

The confluence of these weaker-than-forecast indicators strongly suggests that the US economy might indeed be entering a period of significant deceleration. This has dramatically increased the probability of interest rate cuts commencing as early as next month, effectively correcting the recent bull run observed in the Stock Market. The combined impact of a softening labor market and a new series of White House Trade Tariffs exerted downward pressure on indices throughout the week.

Major US indices bore the brunt of this selling pressure. The S&P 500 recorded a 2.4 percent drop over the five trading days, while the Nasdaq composite slid by 2.2 percent, marking the worst weekly performance for both since late May. The Dow Jones Industrial Average suffered an even steeper decline of 2.9 percent, experiencing its most significant weekly loss since early April, reflecting the broad-based nature of the market correction.

Crucially, Friday’s economic data provided some of the most compelling evidence to date that President Trump’s recent Trade Tariffs are inflicting more damage on the US private sector and the jobs market than previously estimated, particularly since the “liberation day” announcement in April. These figures coincided with the August 1 deadline for the White House to impose tariffs on the remaining global trade, pushing the effective tariff rate from just over 2 percent to approximately 18 percent.

In response to the shifting economic landscape, significant capital flowed into US government bonds, which typically benefit from lower interest rates. The two-year Treasury yield, a key indicator sensitive to changes in monetary policy, fell by 0.22 percentage points to 3.72 percent, reaching a five-week low. Similarly, the 10-year yield, often seen as a proxy for government borrowing costs, shed 0.12 percentage points to 4.24 percent, underscoring the demand for safe-haven assets as bond prices rallied.

The dollar also weakened, declining by 1 percent against other major trading currencies and losing 0.4 percent against the pound. This reversal came after the greenback had been poised for its best week since 2022, but fears of a more pronounced economic slowdown in the US Economy led to profit-taking. Simultaneously, the euro, which initially faltered on news of the EU-US tariffs deal, ended 1.25 percent higher on the back of broad dollar selling, reflecting the global rebalancing of currencies.

Market participants swiftly adjusted their expectations for the Federal Reserve’s next move. Traders dramatically increased their bets on the first interest rate cut of the year occurring in September, assigning a 75 percent probability to monetary easing next month, a significant jump from just over 20 percent at the start of the week. This heightened anticipation highlights a growing consensus that the central bank will need to act to mitigate the effects of the emerging economic slowdown on the US Economy and the broader Stock Market.