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In the latest bout of sell-offs that are shaking world markets as investors fret over the state of the US economy, Japan’s benchmark Nikkei 225 stock index plunged 12.4 percent on Monday.
The Nikkei closed down 4,451.28 points at 31,458.42. The market’s broader TOPIX index fell 12.8 percent as selling picked up in the afternoon, the Associated Press reported.
Impact of US hiring data
A report showing hiring by US employers slowed last month by much more than expected has convulsed financial markets, vanquishing the euphoria that had taken the Nikkei to all-times highs of over 42,000 in recent weeks. The Nikkei 225 dropped 5.8 percent on August 2, making this its worst two-day decline ever. Its worst single-day rout was a plunge of 3,836 points, or 14.9 percent, on a day dubbed “Black Monday” in October 1987. At one point, the benchmark sank as much as 13.4 percent on Monday. Share prices have fallen in Tokyo since the Bank of Japan raised its benchmark interest rate on July 31. The Nikkei is now down 3.8 percent from a year ago. One factor driving the BOJ to raise rates was prolonged weakness in the Japanese yen, which has pushed inflation to above the central bank’s 2 percent inflation target.
On Monday, the dollar was trading at 142.39 yen, down from 146.45 on August 2 and sharply below its level of over 160 yen a few weeks ago. The euro fell to $1.0896 from $1.0923.
Computer chipmakers, tech shares hit hard
Shares surged to stratospheric heights earlier this year on frenzied buying of shares in companies expected to thrive thanks to advances in artificial intelligence. The latest setback has hit markets heavily weighted towards computer chipmakers such as Samsung Electronics and other technology shares: on Monday, South Korea’s Kospi plummeted 9.3 percent as Samsung’s shares sank 11.6 percent.
Taiwan’s Taiex also crumbled, losing 8.4 percent as Taiwan Semiconductor Manufacturing Co, the world’s biggest chipmaker, dropped 9.8 percent.
Stocks tumbled around the world on August 2 after weaker than expected employment data fanned worries the US economy could be cracking under the weight of high interest rates meant to tame inflation.
On Monday, the future for the S&P 500 was 1.5 percent lower and that for the Dow Jones Industrial Average was down 0.7 percent.
The VIX, an index that measures how worried investors are about upcoming drops for the S&P 500, fell about 26 percent. Bitcoin which recently had surged to nearly $70,000, was down 14 percent at $54,155.00. Oil prices were little changed. US benchmark crude oil gained 9 cents to $73.61 per barrel while Brent crude was flat at $76.81 per barrel.
All eyes on US service sector data
Investors will be watching for data on the US services sector from the US Institute for Supply Management that may help determine if the sell-offs around the world are an overreaction, Yeap Jun Rong of IG said in a report.
Worries over weakness in the US economy and volatile markets have rippled around the world, even though the US economy is still growing, and a recession is far from a certainty.
Elsewhere in Asia, Hong Kong’s Hang Seng index lost 2.5 percent to 16,519.78 and the S&P/ASX 200 in Australia declined 3.8 percent to 7,637.40. The Shanghai Composite index, which is somewhat insulated by capital controls from other world markets, edged higher but then gave way, losing 1.2 percent to 2,870.34.
The S&P 500’s 1.8 percent decline on August 2 was its first back-to-back loss of at least 1 percent since April. The Dow Jones Industrial Average dropped 1.5 percent, and the Nasdaq composite fell 2.4 percent.
Losses on August 2 dragged the Nasdaq composite 10 percent below its record set last month. That level of drop is what traders call a “correction.”
Fears of recession
The rout began just a couple days after US stock indexes had jumped to their best day in months after Federal Reserve Chair Jerome Powell gave the clearest indication yet that inflation has slowed enough for cuts to rates to begin in September.
Now, worries are rising the Fed may have kept its main interest rate at a two-decade high for too long, raising risks of a recession in the world’s largest economy. A rate cut would make it easier for US households and companies to borrow money and boost the economy, but it could take months to a year for the full effects to filter through.
“Specifically, the scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here,” Tan Boon Heng of Mizuho Bank in Singapore said in a report.