In the upcoming day of European and global markets, Wayne Cole reports a sharp decline in Asian share markets as investors flee from risk and unwind popular trades in a chaotic manner. Positions ranging from yen carry trades to cryptocurrencies are being rapidly sold off, causing spikes in volatility and a decrease in liquidity.

There are also indications that investors may be closing profitable positions to cover losses elsewhere, which could explain gold’s recent struggles. The sell-off has led to trading halts in several markets, including the Topix and KOSPI, with the Nikkei plunging 7% at one point and entering bear territory, having dropped 20% from its peak less than a month ago.

Investors are hoping for intervention from central banks, expecting a global response similar to the Fed put. Futures markets now suggest a 73% chance that the Fed will caut rates by 50 basis points in September, with a total of 115 basis points in cuts anticipated by Christmas. Expectations are for rates to be around 3% by the end of next year. The ECB is anticipated to cut rates by another 74 basis points, while the BoE is expected to reduce rates by 47 basis points. There are also doubts about whether the Bank of Japan will proceed with a planned rate hike in October, leading to JGBs recovering recent losses and 10-year yields returning to April levels.

There is even speculation about an inter-meeting rate cut from the Fed, though this may be overly optimistic. Fed's Goolsbee has downplayed the significance of Friday’s payrolls report and may address it again later on Monday, along with San Francisco President Daly. Despite a jobless rate of 4.25% being relatively low historically, analysts predict it might decrease further in August. The Sahm rule is noted as a reminder that economics isn't a precise science, as evidenced by past improbabilities like negative interest rates.

The U.S. ISM services index is also set to be released, with analysts hoping for a recovery from June’s unexpected drop. The jobs index in this sector will be closely watched due to the significant number of workers involved. Additionally, the Fed's survey of senior loan officers will be scrutinized for signs of lending stress. Treasuries have not extended their significant rally from Friday, with 10-year yields at 3.78%, slightly higher than the earlier low of 3.723%. Fed fund futures also saw a reduction in early gains, particularly for 2025 contracts.

Interestingly, two-year yields are nearing a point where they could slip below the 10-year yields, potentially signaling a positive yield curve for the first time since mid-2022—a situation that has historically preceded recessions. Goldman Sachs has raised its recession risk estimate to 25%, while JPMorgan’s estimate is double that.