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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Nikkei sinks 11%, Nasdaq futures dive 3.7%

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Circuit breakers tripped by torrent of selling

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Markets see 50bps Fed cut in Sept, maybe even earlier

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Dollar falls 2% on safe haven yen, 1% on Swiss franc

(Updates market moves)

By Wayne Cole

SYDNEY, Aug 5 (Reuters) - Share markets tumbled and

bonds rallied in Asia on Monday as fears the United States could

be heading for recession sent investors rushing from risk assets

while wagering that rapid fire rate cuts will be needed to

rescue growth.

The safe haven yen and Swiss franc surged as crowded carry

trades unravelled, sparking speculation some investors were

having to unload profitable trades just to get the money to

cover losses elsewhere. Such was the torrent of selling that

circuit breakers were triggered in exchanges across Asia.

Nasdaq futures sank a deep 3.7%, while S&P 500

futures dropped 1.8%. EUROSTOXX 50 futures fell

1.3% and FTSE futures 0.8%.

Japan's Nikkei shed a gut-wrenching 11.6% to hit

seven-month lows, a scale of losses not seen since the 2011

global financial crisis. MSCI's broadest index of Asia-Pacific

shares outside Japan lost 3.8%.

Chinese blue chips dipped only 0.5%, aided by a

bounce in the Caixin services PMI to 52.1.

Japanese 10-year bond yields fell a steep 17

basis points to the lowest since April at 0.785%, as markets

radically reconsidered the prospect of another hike from the

Bank of Japan.

Treasury bonds were in demand with 10-year yields

hitting 3.723%, the lowest since mid-2023.

Two-year yields dropped to 3.807%, having already

fallen 50 basis points last week, and could soon slide below

10-year yields, turning the curve positive in a way that has

heralded recessions in the past.

The worryingly weak July payrolls report saw markets price

in a 78% chance the Federal Reserve will not only cut rates in

September, but ease by a full 50 basis points. Futures imply

122 basis points of cuts in the 5.25-5.5% funds rate this year,

and see rates around 3.0% by the end of 2025.

"We have increased our 12-month recession odds by 10pp to

25%," said analysts at Goldman Sachs in a note, though they

thought the danger was limited by the sheer scope the Fed had to

ease policy.

Goldman now expects quarter-point cuts in September,

November, and December.

"The premise of our forecast is that job growth will recover

in August and the FOMC will judge 25bp cuts a sufficient

response to any downside risks," they added. "If we are wrong

and the August employment report is as weak as the July report,

then a 50bp cut would be likely in September."

Analysts at JPMorgan were even more bearish, subscribing a

50% probability to a U.S. recession.

"Now that the Fed looks to be materially behind the curve,

we expect a 50bp cut at the September meeting, followed by

another 50bp cut in November," said economist Michael Feroli.

"Indeed, a case could be made for an inter-meeting easing,

especially if the data soften further - although Fed officials

might worry about how such a move could be (mis)interpreted."

SEEKING SAFE HARBOURS

Investors will get a read on employment in the service

sector from the ISM non-manufacturing survey due later Monday

and analysts are hoping for a rebound to 51.0 after June's

unexpected slide to 48.8.

This week has earnings from industrial bellwether

Caterpillar ( CAT ) and media giant Walt Disney ( DIS ), which

will give more insight into the state of the consumer and

manufacturing. Also reporting are healthcare heavyweights such

as weight-loss drugmaker Eli Lilly ( LLY ).

The huge drop in Treasury yields had also overshadowed the

U.S. dollar's usual safe-haven appeal and dragged the currency

down 0.4% on a basket of majors.

The dollar shed another 2.2% on the Japanese yen at 143.10

, while the euro dived 1.9% to 156.35. The

single currency was holding firm on the dollar at $1.0934

.

The Swiss franc was a major beneficiary of the rush from

risk, with the dollar falling 0.9% to touch six-month lows at

0.8485 francs.

"The shift in expected interest rate differentials against

the U.S. has outweighed the deterioration in risk sentiment,"

said Jonas Goltermann, deputy chief markets economist at Capital

Economics.

"If the recession narrative takes hold in earnest, we would

expect that to change, and the dollar to rebound as safe-haven

demand becomes the dominant driver in currency markets."

Investors had also increased wagers other major central

banks would follow the Fed's lead and ease more aggressively,

with the European Central Bank now seen cutting by 67 basis

points by Christmas.

In commodity markets, gold gained a safety bid and rose to

$2,456 an ounce.

Oil prices started firmer amid concerns about a widening

conflict in the Middle East, but worries about global demand

soon dragged it down again.

Brent slipped 13 cents to $76.68 a barrel, while

U.S. crude lost 22 cents to $73.30 per barrel.