Why have global financial markets deteriorated so sharply?

Fear has gripped international equity markets as weaker-than-expected earnings from major US companies, surprisingly poor labour market data in the US, and an appreciating Japanese yen led to a rout on international stock markets, and a rapid repricing of investor expectations for interest rate cuts from major central banks. Increased expectations for rate cuts in the US  have led to sharp reduction in UK gilt yields over the last week, accompanied by the first cut in the benchmark interest rate by the Bank of England’s Monetary Policy Committee (MPC) on August 1^st. These have also led to the pound sterling weakening against both the US dollar and euro.

Falling share prices have wiped trillions of dollars of value off of international equity markets, driven by a few triggers. Firstly, an AI-fuelled boom in technology stocks hit a wall last week as earnings from major companies (including Nvidia, Amazon, Meta and Apple) failed to meet