Japan's Nikkei 225 index drops by 12.4% amid global market fears about the US economy.
Bangkok (AP) - On Monday, Japan's Nikkei 225 stock index nosedived 12.4%, reflecting investor anxiety over the U.S. economy. The Nikkei ended the day down 4,451.28 points at 31,458.42, with the broader TOPIX index falling 12.8% in a surge of afternoon selling.
The sell-off was triggered by a U.S. employment report showing a significant slowdown in hiring, shaking global financial markets. This downturn wiped out recent euphoria that had pushed the Nikkei to over 42,000.
Last Friday, the Nikkei 225 had already fallen 5.8%, marking its worst two-day drop ever. Its worst single-day loss was 3,836 points, or 14.9%, during the October 1987 “Black Monday” crash. At one point on Monday, the index dropped as much as 13.4%.
Stock prices in Tokyo have been declining since the Bank of Japan raised its benchmark interest rate last Wednesday. The Nikkei is now down 3.8% from last year.
One reason for the BOJ's rate hike is the prolonged weakness of the Japanese yen, which has pushed inflation above the central bank's 2% target. On Monday, the dollar traded at 142.39 yen, down from 146.45 on Friday and much lower than its recent high of over 160 yen.
The euro also slipped, trading at $1.0896 from $1.0923.
Earlier this year, shares surged on optimism about companies benefiting from advances in artificial intelligence. However, the recent downturn has heavily impacted markets focused on technology shares. South Korea's Kospi index fell 9.3%, with Samsung Electronics dropping 11.6%. Taiwan's Taiex also declined by 8.4%, as Taiwan Semiconductor Manufacturing Co., the world’s largest chipmaker, fell 9.8%.
Global stocks tumbled on Friday following the weak U.S. employment data, fueling fears that high interest rates are straining the U.S. economy. On Monday, futures for the S&P 500 fell 1.5%, and the Dow Jones Industrial Average dropped 0.7%.
Stephen Innes of SPI Asset Management commented, “The spike in volatility underscores just how nervous the markets have become. The key question is whether the typical market response of buying the dip will overcome the deep-seated anxiety caused by recession fears.”
The VIX index, which measures investor fear of upcoming S&P 500 declines, fell about 26% early Monday. Bitcoin, which recently soared to nearly $70,000, dropped 14% to $54,155.
Oil prices remained relatively stable. U.S. benchmark crude oil rose 9 cents to $73.61 per barrel, while Brent Crude stayed flat at $76.81 per barrel.
Investors are now waiting for U.S. services sector data from the Institute for Supply Management, due later Monday, which may clarify if the global sell-offs are an overreaction, according to Yeap Jun Rong of IG.
Despite these concerns, the U.S. economy is still growing, and a recession is not yet a certainty. However, the volatility and fears have spread globally. In Asia, Hong Kong's Hang Seng index dropped 2.5% to 16,519.78, and Australia's S&P/ASX 200 fell 3.8% to 7,637.40. The Shanghai Composite index, somewhat shielded by capital controls, initially edged higher but then fell 1.2% to 2,870.34.
In the U.S., the S&P 500 fell 1.8% on Friday, marking its first consecutive loss of at least 1% since April. The Dow Jones dropped 1.5%, and the Nasdaq composite declined 2.4%. The Nasdaq's recent drop dragged it 10% below its record high from last month, a level traders refers to as a “correction.”
The downturn began just days after U.S. stock indexes had their best day in months, following Federal Reserve Chair Jerome Powell's indication that inflation might have slowed enough to consider rate cuts in September.
However, concerns are mounting that the Fed may have kept its main interest rate too high for too long, increasing recession risks in the world's largest economy. A rate cut could stimulate borrowing and economic activity, but its effects might take months to be felt.
Tan Boon Heng of Mizuho Bank in Singapore noted, “The feared scenario is higher unemployment leading to reduced spending, further limiting hiring and incomes, and potentially causing a recession.”
