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Investor concerns about the health of the world’s largest economy and escalating tensions between Israel and Iran added further pressure on a market already reeling from investors fleeing high-flying technology stocks.
“I don’t see a rebound in the short term as we are facing a combination of unwinding of carry trades in Japan, weakness in big U.S. tech companies and tensions in the Middle East,” said Seema Shah, chief global strategist at Principal Asset Management.
Japan’s defeat
Traders in Tokyo said the sell-off was part of a sharp adjustment by global funds and a move away from risk. But Tokyo stocks were also hit by the yen, which has appreciated about 12% since mid-July. On Monday, the yen surged 2.2% to 142.3 yen against the dollar.
“The Japanese market is viewed by global investors as a credential for global trade,” said the head of Japan at a global pension fund.
“So if you are in a serious de-risk mode, as many investors are right now due to U.S. recession fears and geopolitics, it makes sense to take profits from the Japanese market which has performed well so far this year.”
As the selling frenzy continued into the close, trading in both the Topix and Nikkei futures was halted in the afternoon session, hitting the “circuit breaker” level that automatically halts trading.
In South Korea, a similar circuit breaker was triggered for the first time in four years, and traders at three brokerages in Tokyo said they knew of several large hedge fund clients who were ordered to close their positions as losses mounted.
Australia in ‘chaotic situation’
The Australian sharemarket suffered its worst day in more than four years as growing fears of a US recession sparked panic selling around the world, AAP reported tonight.
The benchmark S&P/ASX200 index fell 293.6 points, or 3.7%, to 7,649.6 on Monday, its biggest one-day drop since May 2020.
This means that the Hong Kong stock market has lost a total of 5.81%, or $160 billion, over the past two trading days, after closing down 2.11% on Friday.
The All Ordinaries Index fell 311 points, or 3.81%, to 7,859.4. The ASX has not experienced such a dramatic two-day sell-off since the COVID-19 outbreak in March 2020.
“The market is collapsing and it’s a sea of red around the world,” said Kyle Rodda, an analyst at capital.com.
“I think we’re in a pretty messy place right now,” AMP chief economist Shane Oliver said. Sky News.
“Inflation scares in the US earlier this year and more recently in Australia have, in my view, unnecessarily delayed monetary easing.
“Certainly, now financial markets are starting to worry about rising recession risks.”
Local traders joined in a global stock market rout on Friday after the U.S. unemployment rate unexpectedly jumped to a nearly three-year high of 4.3%.
That triggered Sam’s rule, which says a recession is likely if the three-month average of the unemployment rate rises by half a percentage point over a year.
However, NAB senior economist Tyler Nugent said this did not necessarily mean the United States would enter a recession, and the strong growth in the labor force participation rate would curb the rise in the unemployment rate to some extent.
One positive sign for traders emerging from Monday’s painful lesson: It is now almost certain that the Reserve Bank of Australia’s board will not raise the cash rate at its meeting on Tuesday.
“A lot can change seemingly overnight in the world of central banks, and what we’ve seen happen over the past week really demonstrates that,” said Scott Solomon, portfolio manager at T. Rowe Price.
“The market had been pricing in a near 50% chance of a rate hike by the end of the year, but the opposite has happened, with the market now pricing in a near 100% chance of a rate cut by the end of the year.”
IT stocks led the decline on the ASX, falling 6.61%, following the tech-heavy Nasdaq’s 2.43% drop on Wall Street on Friday. The remaining 10 industrial sectors also fell by more than 1.5%.
Traders hit the big four banks hard, with Commonwealth Bank falling 5.7 per cent, NAB down 4.6 per cent and ANZ and Westpac both down 4.5 per cent.
Health care stocks were the least hit, falling 1.8%.
Wall Street Turmoil
“The picture changed overnight,” said Torsten Slok, chief economist at Apollo, adding that investors were weighing whether to view Friday’s jobs data as a statistical anomaly or whether the U.S. is “now in the midst of a more severe economic slowdown.”
The Federal Reserve kept interest rates unchanged at its meeting last week, but the market reacted strongly after the release of the employment data, with investors believing that the central bank might have made a mistake by not cutting interest rates.
JPMorgan Chase & Co. economists over the weekend joined a growing chorus of Wall Street strategists calling on the Federal Reserve to cut interest rates by half a percentage point over its next two meetings in response to signs of economic weakness.
Srini Ramaswamy, managing director of U.S. fixed income research at JPMorgan, wrote on Saturday that he has turned “bullish on volatility” given renewed investor uncertainty about the path of interest rates and summer liquidity shortages.
The Vix index, a measure of expectations for turmoil in the U.S. stock market – often referred to as Wall Street’s “fear index” – climbed as high as 29 points on Friday, its highest level since 2019. US regional banking crisis Last March.
The sell-off began among overvalued large-cap technology stocks, many of which reported earnings last week, and broadened after the Federal Reserve decision and jobs data.
Nasdaq Composite Index July hits record high.
Treasury prices rose, with the U.S. 10-year Treasury yield hitting its lowest level since December at 3.82%.
Warren Buffett’s Berkshire Hathaway Disclosed that it has sold half of its Apple shares It also boosted its cash position to a record $277 billion (NZ$465.6 billion) and bought U.S. Treasuries.
Investors are betting the Fed will cut borrowing costs by more than a percentage point by the end of the year to counter economic weakness.
“I think rates are too high,” said Rick Rieder, chief investment officer of global fixed income at UBS. Blackstone.
Reade said that while the economy remains “relatively strong,” the Fed needs to raise interest rates to around 4% “very soon.”
However, Diana Iovanel, senior markets economist at Capital Economics in London, believes that stock “valuations are far from portending economic disaster.”
She added: “Renewed fears of a U.S. recession increase the likelihood of further rate cuts by the Federal Reserve. But we do not believe the U.S. economy will hold back equity gains for long.”
© Financial Times, AAP
Author: Jacob Shteyman for the Australian Associated Press in Canberra. Financial Times reporters Leo Lewis in Tokyo, Arjun Neil Alim in Hong Kong, Philip Stafford and George Steer in London, and Harriet Clarfelt and Kate Duguid in New York.
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