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Concerns about the U.S. economy falling into recession have resurfaced, triggering a series of chain reactions in the capital market, with the Asian market experiencing a "Black Monday."

Recent data released by the U.S. Department of Labor showed that the U.S. unemployment rate unexpectedly climbed to 4.3%. The weak employment report exacerbated investors' concerns about a further economic slowdown, and global stock markets entered a panic plunge mode.

In the Asia-Pacific market, on August 5, the Nikkei and the South Korean Composite Index triggered circuit breakers. Among them, the Nikkei 225 Index plummeted by more than 13% at one point, falling by more than 4,700 points during the day. The South Korean Growth Enterprise Market Index plummeted by 8% and triggered the circuit breaker mechanism, and trading was suspended for 20 minutes.

UBSMark Haefele, global chief investment officer, recently said, "We think it is premature to worry about (the US economy falling into recession)." He mentioned that the US employment data in July did not meet the market's previous expectations, but "it is unwise to read too much into a piece of data."

Mark Haefele's reason is that the recent weak performance of US labor data may be due to the impact of the hurricane season on the job market. "We believe that the US economy is heading for a soft landing, not a contraction," he said.

Regarding the recent weak performance of the Japanese stock market, UBS said in its latest research report released on August 5 that investors currently have to deal with multiple new concerns, including the Bank of Japan's unexpected tightening of policy, a sharp drop in the U.S. dollar against the yen that may hurt Japanese exporters' earnings, and the U.S. economy falling into recession.

UBS expects it may take longer for investor sentiment to recover with the dollar-yen exchange rate well below the 150 mark.

Risk aversion weighs on markets

Last Friday (August 2), U.S. stocks and bond yields both fell as weak employment data raised concerns among investors about the Federal Reserve's late interest rate cuts and the possibility that the U.S. economy could fall into recession.

The U.S. jobs report for July showed that nonfarm payrolls increased by only 114,000, while the unemployment rate rose to 4.3% from 4.1% in the previous month, a sharp rebound from the recent low of 3.4% in May.

"While the unemployment rate is still relatively low by historical standards, such rapid increases in unemployment in the past have often meant a sudden slowdown in economic growth," said Mark Haefele.

But he also believes that "over-interpreting a single piece of data is not a good idea." The impact of hurricanes in the United States may have magnified the weakness of the employment situation in July, and next month's employment report is expected to provide more clues.

Mark Haefele also mentioned that the U.S. employment report data disappointed the market and will exacerbate market concerns that high interest rates will remain for too long.

"Given recent evidence that inflation is continuing to fall back toward the Fed's objective, we believe the Fed has both the motivation and the reason to cut interest rates faster than previously expected," he said.

There is a view in the market that the Federal Reserve will start cutting interest rates from September, and the window for rate cuts is approaching, causing market volatility to increase.

UBS expects the Federal Reserve to cut interest rates by 100 basis points this year, most likely starting with a 50 basis point cut in September, so that the U.S. economy can avoid a recession and still grow close to its 2% trend rate.

Regarding the trend of U.S. stocks, Mark Haefele believes that the U.S. stock market may continue to fluctuate in the short term, but the risk-return has improved after the recent correction, especially in the technology sector.

"If investor concerns about slowing U.S. economic growth and the Federal Reserve lagging behind the interest rate curve continue to grow, and if the development of artificial intelligence does not meet expectations, the market may have room to fall further," he said.

"But similar to what happened last fall, when concerns about an overheated economy and further Fed tightening caused the S&P 500 to fall 10%, we believe current market concerns about growth are overblown," he said.

Emotional repair takes longer

The huge shock in overseas markets was transmitted to the Asia-Pacific market.

Affected by multiple factors including the US economic outlook being worse than expected, the Federal Reserve's late interest rate cut, and the Bank of Japan's interest rate hike, on August 5, Japan's Tokyo stock market continued its downward trend from last week and plummeted. The Nikkei 225 index fell by more than 13% at one point, and the Topix index triggered the circuit breaker mechanism.

"Japanese stocks have led global stock market declines in the past few days, and these declines occurred against the backdrop of a sharp rebound in the yen due to the Bank of Japan's interest rate hike." UBS analyzed in a research report released on August 5 that investors currently have to deal with multiple new concerns, including the Bank of Japan's unexpected tightening policy, a sharp drop in the US dollar against the yen that could hurt Japanese exporters' earnings, and the US economy falling into recession.

Recently, the Bank of Japan raised interest rates to 0.25% "beyond expectations", and the yen exchange rate against the US dollar soared to over 150.

UBS analyzed that if the USD/JPY exchange rate remains at 150 or above, we may see a rebound in the Japanese stock market in the short term; if the USD/JPY exchange rate is far below 150, it may take longer to restore investor sentiment.

UBS also said that if the dollar-yen exchange rate remains at 145-150, Japan's general earnings forecast pressure may continue.

"In the short term, we believe that the current Topix index level is equivalent to a USD/JPY exchange rate of less than 150, but short-term market volatility should continue until the USD/JPY exchange rate stabilizes." UBS believes that "recovery is likely to occur after Japanese companies announce their first-half earnings in October, or even after the US presidential election in November."

In this case, how should investors deal with the volatility of the Japanese stock market?

Taking the investment portfolios of Japanese investors as an example, UBS analysis said that the Federal Reserve's upcoming interest rate cut cycle, continued review of the development of artificial intelligence, and rising political uncertainty before the US presidential election in November all mean that Japanese investors should be prepared for new fluctuations, but avoid overreacting to short-term market changes.

Against this backdrop, UBS recommends that investors should focus on investing in companies with strong competitive advantages and sustained growth, while seizing opportunities in artificial intelligence. Long-term investors can consider investing in hedge funds and private equity to find new sources of returns and potentially reduce volatility in portfolio value.