(Bloomberg) — Japanese stocks are likely to regain some ground after taking the biggest hit in Monday’s global crisis, which wiped out billions in markets from New York to London. US stock futures rose in early trading.
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Futures show the Nikkei 225 gaining more than 6% when it reopens on Tuesday after a 12% drop that was the worst one-day drop in yen terms. Stocks in Hong Kong and Sydney appear more stable, suggesting investors may be ready to catch their breath after a dramatic day in which Wall Street’s “fear gauge” – the VIX – at one point recorded its biggest rise in history. data since 1990.
Although the S&P 500 pared some of its losses and ended down 3% on Monday, it still suffered the biggest drop in about two years amid strong trading volume. The tech-heavy Nasdaq 100 had its worst start to a month since 2008. Still, futures show both indexes could rise when U.S. trading begins on Tuesday.
Speculation about an imminent US recession – most seen as premature – has dampened the celebratory mood driven by recent signals from the Federal Reserve about the timing of its first rate cut. The repricing was so sharp that the swap market previously assigned a 60% probability of an emergency rate cut by the Fed next week. These odds subsequently decreased.
“The economy is not in crisis, at least not yet,” said Callie Cox of Ritholtz Wealth Management. “But it is fair to say that we are in the danger zone. The Fed risks losing ground here if it doesn’t better recognize the fissures in the labor market. Nothing is broken yet, but it is breaking and the Fed risks falling behind the curve.”
Treasuries lost some momentum after a rise that briefly took two-year yields — which are sensitive to monetary policy — below 10-year bond yields. US 10-year yields remained little changed at 3.78%. The dollar fell. An indicator of perceived risk in US corporate credit markets soared, with the turmoil effectively shutting down bond sales on what was expected to be one of the busiest days of the year. Bitcoin sank about 10%.
In Asia, the wave of sales that peaked in Japan may subside. On Monday, investors rushed to unwind popular carry trades, driving a 2% jump in the yen and sending the Topix stock index down 12% to close the day with the biggest three-day drop in data going back to 1959. The defeat is over. disclosed $15 billion worth of SoftBank Group Corp. on Monday.
The Bank of Japan’s tightening of monetary policy last week triggered a wave of criticism after it helped trigger a historic plunge in Japanese stocks and contributed to global market turmoil – likely putting on ice any plans for further rate hikes. interest.
The fall in US stocks is vindicating some prominent bears, who are doubling down with warnings about the risks of an economic slowdown. Mislav Matejka of JPMorgan Chase & Co. said stocks are likely to remain under pressure due to weaker business activity, falling bond yields and a deteriorating earnings outlook. Michael Wilson of Morgan Stanley warned of “unfavorable” risk-reward.
“This does not look like the ‘recovery’ scenario that was hoped for,” Matejka wrote. “We remain cautious on the stock, waiting for the ‘bad is bad’ phase to arrive,” she added.
Market veteran Ed Yardeni said the current stock sell-off bears some resemblance to the 1987 crisis, when the economy avoided a recession despite investor fears at the time.
“This is very reminiscent, even now, of 1987,” Yardeni told Bloomberg Television. “We had a stock market crash – which basically happened in one day – and the implication was that we were in recession or about to. And that didn’t happen at all. It really had more to do with the internal aspects of the market.”
After a very strong first half, the market became broad in the short term and the bar for positive surprises was too high – and some bad news went a long way, according to Keith Lerner of Truist Advisory Services.
“From a stock market perspective, our base case has not changed,” Lerner said. “Our work still suggests that the bull market deserves the benefit of the doubt. However, we expected a more unstable environment in the second half of July and August, given the strong recovery in April, tense sentiment and the fact that we are entering a seasonally weaker period of the calendar year.”
Furthermore, after strong first half months, we have historically seen a typical 9% pullback at some point, even when markets still tended to end higher at the end of the year.
Notably, over the past 40 years, the S&P 500 has seen a maximum intra-annual pullback of 14%. Despite this, stocks still delivered an average (non-compounded) return of 13% and rose in 33 of the 40 years, or 83% of the time, Lerner said.
“While always uncomfortable and typically accompanied by bad news, pullbacks are the price of admission into the stock market,” Lerner said. “This is what provides the potential for higher long-term returns relative to most other asset classes.”
Investors should hedge their risk exposure even if they own high-quality assets as U.S. stocks add to losses, according to Tony Pasquariello of Goldman Sachs Group Inc.
“There are times when you need to accelerate and there are times when you need to hit the brakes – I am inclined to reduce exposures and go on strikes,” Pasquariello wrote. He added that it’s difficult to think that August will be one of those months where investors are expected to take on significant portfolio risk.
For Bank of America Corp.’s Michael Gapen, the markets are once again ahead of the Fed.
“Incoming data has raised concerns that the US economy has reached an ‘air pocket’. A rate cut in September is now a virtual lockdown, but we don’t think the economy needs aggressive, recession-sized cuts.”
As the sell-off in global stocks intensified on Monday, JPMorgan Chase & Co.’s trading desk said the rotation out of the technology sector may be “almost complete” and that the market is “getting close.” of a tactical opportunity to buy the dip.
Elsewhere in the Asian region, Australia’s central bank is expected to keep its monetary rate at 4.35% for the sixth consecutive meeting on Tuesday, economists predict. The nation is poised to remain near the end of the global easing cycle as local inflation – although cooling – remains high, requiring the Central Bank to maintain its policy interest rate at a 12-year high.
Oil rose from a seven-month low on Tuesday morning as the halt in production from Libya’s largest field redirected attention to the Middle East.
Corporate Highlights:
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Palantir Technologies Inc. raised its annual outlook, citing continued demand for its artificial intelligence software.
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A federal judge ruled Monday that Google illegally monopolized the search market, handing the government an epic victory in its first major antitrust case against a tech giant in more than two decades.
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Nvidia Corp.’s next artificial intelligence chips will be delayed due to design flaws, The Information reported, citing two unidentified people who help produce the chip and its server hardware.
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Dell Technologies is cutting jobs as part of a reorganization of its sales teams that includes a new group focused on artificial intelligence products and services.
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Shares of Tyson Foods Inc. rose, bucking a broad pullback in stock markets, as quarterly earnings beat analysts’ highest estimates due to a rebound in chicken profits.
Main events this week:
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Australia rate decision Tuesday
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Retail sales in the euro zone, Tuesday
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China trade, foreign exchange reserves, Wednesday
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Consumer credit in the US, Wednesday
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Industrial production in Germany, Thursday
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Initial unemployment claims in the US, Thursday
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Fed’s Thomas Barkin Speaks Thursday
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China PPI, CPI, Friday
Some of the main movements in the markets:
Actions
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S&P 500 futures were up 0.9% at 8:08 a.m. in Tokyo; the S&P 500 fell 3%
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Nikkei 225 futures rose 6.3%
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Hang Seng futures rose 0.2%
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S&P/ASX 200 futures fell 0.4%
Coins
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The Bloomberg Dollar Spot index was little changed
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The euro has changed little against the dollar
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The Japanese yen fell 0.7% to 145.23 per dollar
Cryptocurrencies
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Bitcoin rose 0.8% to $54,831.63
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Ether rose 0.9% to $2,461.61
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This story was produced with help from Bloomberg Automation.
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