A global stock sell-off deepened as investors fled to safe havens

Investors on Monday turned to safe-haven assets as a sell-off in global stocks deepened, following weaker-than-expected US jobs data last weekend.

A disappointing jobs report led investors to fear the Federal Reserve made a mistake last week as interest rates remained unchanged, and the world’s largest economy headed for recession.

Stock sales have also increased due to volatility in some key earnings and a more hawkish Bank of Japan, leading to speculation that the popular yen “do the trade” has imploded over a short-term basis. A “carry trade” occurs when an investor borrows in a currency with a low interest rate, such as yen, and reinvests proceeds in a currency with a higher rate of return.

On Monday, the Swiss francs strengthened 1.7% against the dollar to trade at 1.186 against greenbackreached its strongest level since January this year.

US Treasury yields, which move inversely to prices, have further declined. At 8:50 a.m. ET, the yield on the 10-year Treasury was down 11 basis points to 3.681%. The 2-year Treasury yield was last trading at 3.68% after falling 20 basis points for nearly two years. The yield on Japan’s 10-year government bond meanwhile fell 21 basis points to 0.741%.

The buying is in stark contrast to the selling seen in the stock market. US stock futures fell early Monday, with Dow Jones Industrial Average futures down 1,150 points, or about 2.9%. S&P 500 futures and Nasdaq-100 futures fell 4% and 5.4%, respectively.

Japanese stocks confirmed the bear market in Asia overnight. The 12.4% drop in the Nikkei – which closed at 31,458.42 – marked the worst day for the index since “Black Monday” in 1987. The 4,451.28 drop in the index was also the largest drop in points in its entire history.

In Europe, the regional Stoxx 600 index was 3.3% lower, with all sectors and major regional exchanges trading in the red. Tech shares shed 5% before losses eased slightly to trade down 4%.

While fears of a US recession appeared to have triggered the start of the sell-off last week, Peter Schaffrik, global macro strategist at RBC Capital Markets, said wider factors should not be overlooked.

“When you look at the labor market report in more detail, I think there’s some legitimate concern about whether it’s actually as weak as it sounds,” Schaffrik told CNBC’s “Squawk Box Europe” Monday. Schaffrik added that the latest total US data would still lead the Federal Reserve to cut rates by 25 basis points in September, rather than opting for a bigger cut.

Schaffrik then said that the big move in the yen should not be overlooked, while the equity market’s wobble strengthened further developments as investors scrabble for repositioning.

“We are in a position now where market movements create market movements,” said Schaffrik.

“If you see someone who has several positions, the positions are then tilted, because the market moves in the other direction. get a significant surprise (risk value).

The Vix index – a measure of market volatility – jumped to its highest level in nearly four years on Monday.

Schaffrik continued: “That forces people to take down their overall position. And obviously, they have to sell to the falling market already, or have to buy to the rising market in the case of Treasurys. And then strengthen themselves.”

Ted Alexander, chief investment officer at BML Funds, said the current market volatility is “long overdue,” and that this is no reason to panic.

“Everybody’s been waiting for a while, (it’s) good for active managers,” he told CNBC by email, adding that the shake-up might bring equity investors back if stocks offer better value.

“The stock market is not yet cooked. Do not leave some exposure to technology and growth,” said Alexander.

George Lagarias, chief economist at Forvis Mazars, shared a similar view in a note on Monday.

Stock and bond market movements “were not due to the (US) recession. Stocks naturally corrected and bonds rose due to worse-than-expected macroeconomic data,” Lagarias said.

Instead of selling equities indicating a case of a broad market re-rating, the details of stock movements show some spillover from yen carry trades, partial unwinding of AI trades, re-ratings from the technology sector and more. profit-taking after a long period of high valuation, Lagarias argued.

“Assuming that the Fed acts quickly so that corrections that express risk do not threaten a real recession, further corrections could dampen the market and allow investors to distribute cash at a more reasonable price,” he said.

—CNBC’s Sarah Min and Lim Hui Jie contributed to this report