Japan’s Nikkei is down 12%, the largest point ever, as fears of a US recession shook global markets. The Topix index erased its yearly gains, experiencing its steepest sell-off since “Black Monday” in October 1987. In Europe, the Stoxx Europe 600 dropped 2.2 percent. US futures indicated further declines, with Nasdaq 100 contracts down 3.8 percent and the S&P 500 expected to open 2.3 percent lower. Traders in Tokyo attributed the sell-off to a significant correction and de-risking by global funds. Additionally, Tokyo equities were impacted by a yen surge, which has risen about 12 percent since mid-July. On Monday, the yen jumped 3 percent to ¥142.27 against the dollar.
Global declines are fueled by fears that the Federal Reserve has been too slow to react to signs of a weakening US economy, possibly leading to rapid interest rate cuts to catch up. Markets now expect 1.25 percentage points of cuts — five quarter-point reductions — over the Fed’s final three meetings of the year.
Investor worries about the US economy’s health, coupled with rising tensions between Israel and Iran, are further pressuring a market already dealing with an exodus from high-flying technology stocks.
There is no expecting a bounce for a little while because right now we have this perfect storm of the Japanese carry trade being unwound, weakness in US Big Tech, and Middle East tensions.
Futures on the Vix index, often referred to as Wall Street’s “fear gauge,” surged above 40 points on Monday, reaching their highest level since the early stages of the Covid-19 pandemic.
Trading in Topix and Nikkei futures was suspended in the afternoon as a selling frenzy triggered “circuit breaker” levels, automatically halting trading. In Korea, similar circuit breakers were activated for the first time in four years. Traders at three different Tokyo brokerages reported that several large hedge fund clients were ordered to close positions as losses mounted.
“Investor sentiment was down as the US employment data for July came in lower than expected, raising fears that the US economy is slowing more than expected,” IwaiCosmo Securities said.
“The market was also weighed down by the yen’s appreciation against the dollar and as expectations for exporters’ upbeat financial results receded,” the brokerage added.
On Wall Street on Friday, the Dow Jones Industrial Average finished down 1.5 percent as data showed the US jobs market cooled much more than expected in July.
European stock markets also closed sharply in the red.
In an attempt to calm volatility in the market, futures trading was suspended for 10 minutes as a so-called “circuit-breaker” on the Nikkei and Topix indexes on the Osaka Exchange in Japan’s Western metropolis, an exchange official said.
Semiconductor shares plunged with Tokyo Electron nosediving 18.48 per cent to 22,055 yen and Advantest tumbling 15.84 percent to 5,313 yen.
Toyota plummeted 13.65 percent to 2,232 yen.
The sell-off in Japan mirrored declines across other Asian markets. South Korea’s Kospi benchmark dropped 8.8 percent, Australia’s S&P/ASX fell 2.5 percent, and India’s Sensex lost 2.6 percent.
The global market turbulence also affected cryptocurrencies, with bitcoin’s price dropping nearly 16 percent to $52,740, and ether falling almost 17 percent to $2,200.
The Fed kept rates on hold at its last meeting, but market reactions to recent jobs data suggest investors believe this was a mistake.
JPMorgan economists joined other Wall Street strategists over the weekend in calling for the Fed to reduce rates by 0.5 percentage points at its next two meetings.
