FX168 Financial News Agency (Asia Pacific) News August 5th-9th Market Overview: This week's "Black Monday" shock hit the financial market, panic selling swept the world, and the Japanese stock market was hit first under the pressure of arbitrage trading, and the largest single-day decline in history occurred. Then, the deputy governor of the Bank of Japan played the role of the "savior of the market" to stop the bleeding of the market, and the crazy sell-off was eased on Thursday due to the easing of hard-landing worries caused by the initial jobless claims data in the United States.
Judging from the market performance, global stock markets suffered the most turbulent week, with the US stock market collapsing at the beginning of the week, and then wiping out most of the declines this week, with a slight decline throughout the week, and the "panic index" VIX soared and fell sharply. After the historic plunge of the Japanese stock market on Monday, it violently rebounded and regained most of its decline, eventually falling by 2.46%.
Due to concerns about economic recession, the US dollar plummeted more than 100 points on Monday, and then soon rebounded in the following days. It was almost flat throughout the week. The Japanese yen broke out under the pressure of arbitrage trading and once rose to the level of 141.68 against the US dollar, and then fell back in the following days under the influence of the US dollar rebound, ending 5 consecutive weeks of declines with a slight rise. Under the drag of the battered risk sentiment, Bitcoin plummeted on Monday and fell below the $0.05 million mark, and then rebounded to above $0.06 million.
Under the drag of panicked selling in the market, gold fell for three consecutive days at the beginning of the week, and then rebounded strongly on Thursday and Friday to regain most of its gains, with a weekly decline of 0.42%. The concern about economic recession easing and the intensification of tension in the Middle East stimulated oil prices. Finally, WTI crude oil rose by 4.52% this week, and Brent crude oil rose by 3.71% this week.
This week's news inventory:
Comparable to the stock disaster! The global market suffered from "Black Monday"
After the non-farm payrolls "cold explosion" last week, concerns about the US economy have increased, and the global stock market is caught in a "Black Monday" under the double pressure of the continuous conversion of the yen carry trade and the appreciation of the Japanese yen. The Nikkei index hit the largest single-day point drop in history, and the yen rose 3.3%, and the US dollar hit a seven-month low, and gold shook more than $90. Bitcoin once fell below the $0.05 million mark, and the Dow once plunged 1237 points, and the VIX panic index soared.
The July US employment report released on Friday (August 2) showed that the increase in employment was lower than market expectations, causing concerns about economic recession to spread rapidly, and the US stock market fell sharply, and this sell-off continued at the beginning of the week.
The Nikkei index hit the largest single-day drop in history on Monday (August 5th), and finally plummeted 4,451.28 points, or 12.4%, to close at 31,458.42 points, hitting a four-month low, because investors are worried that the US economy may fall into recession and the appreciation of the yen exchange rate will seriously hit Japan's export stocks, triggering a panic sell-off in the Japanese stock market。
The Nikkei index fell by 12.4% at the close of the Japanese stock market on Monday, rewriting the largest single-day drop since October 1987, extending the sell-off triggered by market concerns last week that the US economy was weaker than previously expected. Coupled with the sharp drop of 2216.63 points at the close last Friday, the Nikkei Index plummeted 6,667.91 points in two consecutive days, setting the largest two-day drop point in history. Shoichi Arisawa, general manager of the investment research department of IwaiCosmo Securities, said: "The sharp drop in the Japanese stock market is mainly due to concerns that the US economy may fall into recession."
Another bearish factor for the Japanese stock market is the soaring yen. The prospect of the Fed interest rate cut has suppressed the dollar exchange rate. Coupled with the Bank of Japan's insistence on interest rate hikes, it has greatly boosted the yen exchange rate. In just over three weeks, the yen has soared by 10% against the US dollar, causing fatal blows to Japanese exporters.
The safe-haven currency yen performed well, rising as high as 141.7 against the US dollar, up 3.3%, a new high this year. The US dollar index once fell to 102.16, the lowest level since January 12, a drop of 1.02%. The euro rose to the highest level since January 2, up 0.89%, to 1.101 against the US dollar.
The yen's rise began on July 31, when the Bank of Japan raised its benchmark interest rate from 0.1% to 0.25%, and the central bank said it was open to interest rate hikes this year. Subsequently, the Japanese stock market fell all the way for three consecutive days, with the Nikkei index plunging 3.5% on Thursday and 5.8% last Friday. The yen continued to strengthen, and on Monday's intraday, the yen against the US dollar rose to the 141 level, hitting a seven-month high.
The Volatility Index (VI) of the Nikkei Stock Average soared above 50 in the afternoon of the 5th day, reaching the highest level since the outbreak of the COVID-19 pandemic in April 2020. The stock market crash led to stop-loss trading by CTA (commodity trading advisors) who sold and accumulated long positions (buy hold positions) due to the pursuit of margin calls by individual investors.
In response, Japan's chief cabinet secretary, Yoshihide Suga, stated that the Japanese government will "continue to remain vigilant and closely monitor market developments." We recognize that there are various evaluations of the stock market crash and the Japanese economy, but the government will continue to work towards thoroughly overcoming deflation and driving economic transformation with growth as the key driver.
At the moment of the collapse of the Japanese stock market, global risk assets were bloodied and even gold was reduced to a sacrifice. Bitcoin plummeted by up to 16.8 percent, breaking through the $0.5 million mark and falling as low as about $0.492 million. Spot gold fell as low as $2,364.43, down more than 3.2 percent and shaking more than $90. Oil and gas and utility stocks both fell by about 3.5 percent. UK, German and French stocks fell back 2.04%, 1.82% and 1.42% respectively.
This panic quickly spread to European and American stock markets. The pan-European Stoxx 600 fell 2.17%, with the largest decline once reaching 3.62%. Oil and gas and utility stocks both fell by about 3.5%. UK, German and French stocks fell back 2.04%, 1.82% and 1.42% respectively.
The Dow Jones Industrial Average (DJIA) once plummeted 1,237 points, but still maintained a 1,033-point or 2.6% decline at the close; the Standard & Poor's 500 Index (S&P 500) fell 3%; and the Nasdaq Composite Index (NASDAQ) fell 3.43%, with a maximum intraday drop of 6.36%. Nvidia postponed the launch of its new AI chip, and its stock price plummeted by 15.5%, closing down by 6.4%; Intel fell 6.3%.
The VIX volatility index, commonly known as the panic index, rose by up to 181% to 65.73, reaching the level of the early outbreak of the COVID-19 pandemic. The market was volatile, and some retail trading platforms experienced system failures.
ForexLive analyst Adam Button said that under the dominant mood of panic, investors rushed to exit the market, and almost all investment tools were sold off.
As global stock markets collectively collapsed, market panic led investors to bet heavily on central bank rate cuts. Radical analysts believe that the Fed has reason to take action before the September meeting, with a 60% chance of a 25 basis point rate cut within a week.
Goldman Sachs said that if its predictions are wrong and the August employment report is as weak as July, there is a high probability of a 50 basis point rate cut in September. Citigroup also said that rate cuts of 50 basis points are possible in both September and November. JPMorgan economists changed their views on Fed predictions, saying that there is a "strong reason" for an emergency rate cut between meetings and a 50 basis point cut at the September and November policy meetings. They also believe that the Fed has the possibility of announcing a policy change before the planned announcement on September 18th.
The Bank of Japan has surrendered! Japanese stocks make a big comeback.
Following Monday's market plunge and double-digit losses, the Japanese stock market made a significant rebound on Tuesday (August 6th) due to comments from the Fed and data easing investor concerns about stock valuations and potential US recession. The Nikkei index closed up 10.2%, or 3,217.04 points, marking the largest single-day point gain in history.
On Wednesday (August 7th), the Japanese stock market once again plunged more than 900 points, but then made a big comeback thanks to dovish comments from Bank of Japan Deputy Governor Shinichi Uchida, which caused the Nikkei index to reverse and weakened the yen.
Bank of Japan Deputy Governor Shinichi Uchida issued a strong dovish signal after historic turmoil in the Japanese financial market, promising not to raise interest rates in unstable markets. On Wednesday, Uchida stated that the Bank of Japan will not raise the policy interest rate if the financial market is unstable. This is Uchida's first public speech after the historic crash of the Japanese stock market. After his speech, the exchange rate of the yen against the US dollar plunged by more than 2%, and the Japanese stock market rebounded sharply.
"I believe that due to the very unstable development of domestic and overseas financial and capital markets, the Bank of Japan needs to maintain monetary easing at the current policy interest rate level," said Shinichi Uchida in a speech to local business leaders in Hakodate, northern Japan.
Shinichi Uchida's remarks contrasted sharply with the hardline stance of Bank of Japan Governor Kazuo Ueda and boosted the Nikkei index, causing the yen to weaken.
Analysts pointed out that Shinichi Uchida's comments highlighted how much the market longs to hear dovish remarks from central bank officials, reassuring investors that policy makers are still part of the global picture. The sharp drop in the yen was particularly welcome, as it reduced the possibility of new, rushed arbitrage trade closures and the resulting deleveraging impulse.
French Agricultural Credit expressed that Shinichi Uchida's remarks confirmed that the Bank of Japan may remain cautious about raising interest rates again soon, which will put pressure on the yen.
Shinichi Uchida is a senior policy designer who was actively involved in designing the Bank of Japan's massive monetary easing program, which lasted more than a decade. Shinichi Uchida is widely known for playing an important role in the process of developing normal policies of Bank of Japan Governor Kazuo Ueda.
Charu Chanana, director of currency strategy at Saxo Markets, said Amamiya's comments "currently offer some stability to the Japanese stock market, but do not dispel concerns over the downturn in US economic data and recession, which have been the massive catalysts we've seen for recent declines."
"In this high-volatility and recession-wary environment, it is still difficult to make new arbitrage trades," she said. "The yen is likely to fluctuate in the 145 range for now, but with the Fed accepting rate cuts, risk-return is still biased towards further strength."
US initial claims of guilt, and the market went crazy.
No one could predict how the market turmoil this week could end, but surprisingly, almost all of the losses caused by investor panic due to the approach of the US economic recession were wiped out by a weekly US unemployment benefits report alone.
The improvement in market sentiment in the second half of the week was due to the initial US unemployment claims data, which showed that the number of people applying for unemployment benefits was less than expected. The data eased concerns about labor markets that were sparked after last week's employment data was worse than expected, raising fears of a global economic recession.
The data released by the US Labor Department on Thursday showed that the seasonally adjusted initial jobless claims for the week ending August 3 were 0.233 million, a decrease of 0.017 million, the largest decline in about 11 months. Economists surveyed by Reuters had previously predicted that initial jobless claims for last week would be 0.24 million.
US stocks rebounded from the decline on Thursday, with the Dow rising more than 700 points at one point, and the Standard & Poor's 500 index recording its largest single-day gain since November 2022. The Dow Jones rose sharply 176 points and then quickly rose as high as 39,508 points, up 744 points at its highest point; the S&P 500 index rebounded by up to 2.5%, and the tech-heavy Nasdaq rose sharply by 3.1%. The VIX volatility index, commonly known as the "panic index," fell more than 14% to below 24.
Bannockburn Global Forex's chief market strategist Marc Chandler said:"Discussions about an imminent recession seem absurd."
"It's been a turbulent week," said Liz Young Thomas of Social Finance Inc. "The market has been volatile, and we've learned how sensitive the market is to the slowing US economic data, how far-reaching the impact of the yen carry trade is, and how investors are accustomed to seeing interest rate cuts as a panacea for all problems."
JPMorgan mentioned that three-quarters of the world's carry trades have been unwound and that returns from related trading have fallen 10% since May, wiping out gains for the year. The bank believes that carry trades will not be an attractive trading strategy in the medium to long term, given factors such as the US presidential election.
However, Fawad Razaqzada, an analyst at City Index, believes that the stock market is still fragile and needs more evidence of major market bottoms to lure investors back. He pointed out that the overall market sentiment remains cautious, with few investors interested in buying low, especially with US inflation data due to be released next week.
The global market was repriced so dramatically that at one point, the interest rate swap market implied a 60% chance that the Federal Reserve would cut interest rates urgently next week, ahead of its next scheduled meeting in September. Friday's pricing indicated a rate cut expectation of about 40 basis points in September.
Tony Pasquariello, head of global hedge fund business at Goldman Sachs, said that after a turbulent week in global markets, the worst sell-off may be behind us, but investors currently need to maintain strict control over major directional bets. In addition, JPMorgan expects the probability of a US recession this year to rise to 35%, maintaining its forecast of a 45% probability in the second half of next year.
China's economy shows signs of turning around.
Thursday's initial claims data from the US lowered concerns about an economic recession. On Friday, there were also some positive signs in China, which had been a cause for concern due to its economic slowdown.
Consumer inflation data on Friday showed a larger-than-expected rise in prices in July, while Wednesday's trade data showed a surprising rebound in imports. This indicates that the risk of a widespread deflation risk in the world's second-largest economy has decreased.
Data released by China's National Bureau of Statistics on Friday, August 9, showed that the consumer price index (CPI) for July rose 0.5% year-on-year, up from 0.2% in June and higher than the 0.3% increase expected by economists surveyed by Reuters. On a month-on-month basis, the CPI rose by 0.5%, while it fell by 0.2% in June and was expected to rise by 0.3%. The core inflation rate, which excludes highly volatile food and fuel prices, rose 0.4% in July, down from 0.6% in June.
Meanwhile, factory gate prices continued to fall due to deflationary pressures that began at the end of 2022. The producer price index (PPI) for July fell 0.8% year-on-year, slightly less than the expected 0.9% but the same as the June decline of 0.8%.
Serena Zhou, senior China economist at Suex Securities Asia, said:"Adverse weather conditions and last year's low base price for pork, rather than continuous growth in domestic demand, were the main driving factors."
Gold rides the roller coaster
The panic selling in the market this week has made gold a sacrifice. It experienced a crazy quake of more than $90 on Monday, once touching $2,364. On Thursday, it rebounded sharply by more than $40 to above $2,420, reducing its weekly decline to about $10, and eventually closed down 0.42%.
Global markets suffered a frenzy of selling on Monday, and gold was sold as additional collateral for other assets. The gold price fluctuated by more than $90 at one point, but later recovered some of its losses due to the US ISM service sector PMI report easing concerns about a severely weak labor market. Meanwhile, comments from Federal Reserve officials reinforced expectations of a larger-than-expected interest rate cut later this year, helping to partially offset the decline in gold prices.
"Due to the high liquidity of gold, the price of gold has been fluctuating in recent days. Additional margin calls in other asset categories may lead to some gold positions being sold off to offset losses in other positions," said UBS analyst Giovanni Staunovo. "We remain optimistic about the outlook for gold, with a target of reaching $2,600 by the end of this year. When the Fed begins its rate-cutting cycle, the price of gold will rise further."
Everett Millman, chief market analyst at Gainesville Coins, said he expects seasonal bullishness in August to support gold, despite geopolitical and market volatility.
Millman said the sharp drop in gold when the market fell on Monday was expected. "It's a bit counterintuitive, but when other markets are falling, precious metals usually show this standard response," he said. "Gold is very liquid and easy to sell, and its first reaction when risk assets fall is usually to fall. That's why I'm not surprised, as hedge funds and wealth management companies have to sell something to offset losses."
"If the upcoming US economic data is significantly weak and the Fed becomes more dovish, the price of gold will move towards $2,500 or higher," said Soni Kumari, commodity strategist at ANZ.
She added that traders will also be watching data from China, the major consumer country, and with geopolitical tensions still in the background, demand for safe-haven assets should continue.
After experiencing a nearly blank data calendar this week, market dynamic news will increase again. Next week's highlights include the US July producer price index (PPI), which will be released on Tuesday, followed by the US July consumer price index (CPI) on Wednesday, July retail sales and weekly jobless claims on Thursday, and US July housing starts and building permits data on Friday morning, followed by the preliminary August University of Michigan consumer confidence survey.