Tokyo plunges as markets track Wall St on recession fears

Tokyo saw a significant decline, leading the losses across Asia on Friday due to a stronger yen and expectations for more Japanese rate hikes, while disappointing data sparked a plunge on Wall Street and fueled fresh fears of a US recession.

The positive outlook following Federal Reserve boss Jerome Powell’s suggestion on Wednesday that borrowing costs could be reduced in September has now turned into concern that the slowdown in the world’s leading economy might be more severe than previously presumed. 

The central bank has been seeking confirmation for months that inflation is decreasing and the labor market is weakening, while trying to prevent a sharp decline in business activity. It has been largely confident in achieving a “soft landing”.

However, news on Thursday revealing that the US factory sector contracted faster than expected in July, for the fourth consecutive month, raised concerns.

This news was accompanied by another report showing that the private sector created fewer jobs than anticipated in July, and significantly fewer than in June.

The private sector added 122,000 jobs in July, down from the revised figure of 155,000 in June, while unemployment claims also rose more than expected. 

All eyes are now on the major jobs report scheduled for release later on Friday, which will provide a clearer picture of the labor market situation.

This news has impacted investors, who are also facing a disappointing earnings season from Big Tech companies, a major driver of the global rally that has led to several record highs in markets this year.

US chip giant Intel announced it would cut more than 15 percent of its workforce, about 18,000 jobs, as part of its streamlining operations. The company reported a loss of $1.6 billion in the last quarter and projected a disappointing third quarter.

Other tech giants like Microsoft, Amazon, Tesla, and Google-parent Alphabet also fell short of expectations, and there are growing concerns about the high valuations of some of these market favorites, suggesting a possible need for a pullback.

All three main indexes in New York experienced declines, with the Nasdaq falling by more than two percent.

Asian markets also performed poorly, with the tech sector bearing the brunt of the selling.

The Nikkei 225 in Japan plummeted by more than 5.8 percent – its biggest drop since the pandemic began four years ago – due to a stronger yen, which adversely affects Japan’s key export sector.

Tech giants in the country also faced significant losses, following the downward trend of their US counterparts. Tokyo Electron, the chip titan, experienced a 10 percent drop, while Sony lost more than six percent.

Daiwa Securities mentioned in a note: “Following the declines in New York stocks, the Bank of Japan’s additional rate hike, and the further appreciation of the yen, market sentiment is rapidly cooling down.”

Other markets such as Hong Kong, Sydney, Seoul, Taipei, Shanghai, Mumbai, Bangkok, Wellington, Manila, Singapore, and Jakarta also witnessed losses.

European markets in London, Paris, and Frankfurt also opened with declines. 

The recent decision by the Bank of Japan to raise interest rates for the second time in 17 years, along with talks of another hike to come, strengthened the yen against the dollar.

The pound continued to decline against the dollar, following the Bank of England’s decision to cut its main interest rate for the first time since the Covid pandemic began in 2020.

– Key figures around 0705 GMT –

Tokyo – Nikkei 225: DOWN 5.8 percent at 35,909.70 (close)

Hong Kong – Hang Seng Index: DOWN 2.3 percent at 16,910.45

Shanghai – Composite: DOWN 0.9 percent at 2,905.34 (close)

London – FTSE 100: DOWN 0.5 percent at 8,242.28

Dollar/yen: UP at 149.90 yen from 149.66 yen on Thursday

Euro/dollar: UP at $1.0795 from $1.0750

Pound/dollar: DOWN at $1.2725 from $1.2735

Euro/pound: UP at 84.83 pence from 84.71 pence

West Texas Intermediate: UP 0.8 percent at $76.89 per barrel

Brent North Sea Crude: DOWN 0.7 percent at $80.09 per barrel

New York – Dow: DOWN 1.2 percent at 40,347.97 (close)

dan/tym