Introduction: Nikkei bounces back on turbocharged turnaround Tuesday
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
What a difference a day makes! Some 24 hour ago, the financial markets were in retreat – now, they’re bouncing back.
After its biggest crash since 1987 on Monday, Japan’s Nikkei 225 index has rebounded strongly today. The Nikkei has just closed around 10% higher, after a day of strong buying activity, recovering much of yesterday’s 12.4% slump.
The Nikkei ended the day up 3,217 points, or 10.3%, at 34,675 point..
That’s a record points gain, but below its biggest ever percentage gain of 14.2% in October 2008.
South Korea’s KOSPI index is 3.7% higher, while Australia’s S&P/ASX 200 is up a modest 0.4%.
Jim Reid, strategist at Deutsche Bank, calls it “a turbocharged turnaround Tuesday in Asia”, telling clients jovially:
On certain measures, yesterday was the wildest day of my 29-year career and will make the rides I’m going on at Disney Land Paris this time next week seem a bit like the toddler rides at Peppa Pig World by comparison.
The future market predict indicate European markets, and Wall Street, will recover ground today too.
The UK’s FTSE 100 index is being called up around 1%, after dropping 2% yesterday.
Global stock market carnage was rampant y’day – S&P500 -3%, NASDAQ -3.4%, Europe Circa -1.9%. Oil $77, Bond yields dipped. This AM Nikkei +10%. Opening calls likely to post neurotic bear-squeeze-rally early doors – FTSE +62 @ 8070 DAX +161 @ 17490 CAC +61 @ 7219 DJIA +382 @ 39085
— David Buik (@truemagic68) August 6, 2024
The recent stock wobble has been blamed on several factors, including concerns that a US recession is approaching. Those fears were eased somewhat by strong service sector data yesterday, showing a rebound in new orders.
Another factor is the end of the cheap money era, after the Bank of Japan lifted interest rates last week, squeezing the ‘yen carry trade’ under which investors borrowed yen cheaply to spend on other assets.
Stephen Innes, managing partner at SPI Asset Management, says several factors – including rising volatility – were to blame:
While it’s easy to blame the usual suspect—the carry trade circus—a closer look reveals that there isn’t just one villain in this story. Given the economic climate, the yen carry and other leveraged bets were indeed skating on thin ice. The Bank of Japan might have missed an opportunity to pre-signal a rate hike, and the Fed’s decision to hold rates steady didn’t exactly calm the waters. And let’s not even start on the overinflated tech bubble on Wall Street—a ticking time bomb waiting to go off.
But honestly, we’ve witnessed the perfect storm of market dysfunctions, glaringly apparent during those wild VIX surges when the market’s capacity to manage risk vanished. This was more than just a few bad calls or risky bets going south—imagine a game of hot potato with high-stakes assets, and suddenly, everyone’s hands are full. The higher the VIX, the fewer takers there are for another toss, leading to a market scenario that’s more about dodging than catching.
Chicago Fed Bank president Austan Goolsbee made an effort to calm markets yesterday, telling CNBC that it is “not looking yet like recession”, despite Friday’s slowdown in job creation.
That didn’t prevent Wall Street posting its worst drop in almost two years last night, though:
Today’s calm could be due to a stabilisation in the yen. It is trading around ¥145/$ – having surged from ¥160/$ in early July to ¥141/$ yesterday.
Traders will be looking for signs that policymakers will respond to concerns over economic growth, such as by cutting US interest rates.
Market pricing in 98% odds of a 50bp rate cut in Sept, with a 75bp cut entering the picture. The Fed may need to cut a lot sooner to support the Yen and prevent the US equity market from a quick dive into bear territory, because right now, that’s looking fairly likely.
— Jason Brooks (@brookskcbsradio) August 5, 2024
The agenda
-
7am BST: German factory orders for June 7amabrdn
-
8.30am BST: Eurozone construction PMI for July
-
9.30am BST: UK construction PMI for July
-
1.30pm BST: US trade data for June
-
3.10pm BST: RealClearMarkets/TIPP index of US Economic Optimism
Key events
European stock markets are open, and moving higher!
But it’s not as large a rally as we’ve seen in Japan, at all.
The pan-European Stoxx 600 gained 0.6% at the open.
Cryptocurrencies are also recovering from yesterday’s rout.
Bitcoin’s up 2.5% at $55,810, having yesterday dropped below the $50k mark for the first time since February.
Three water firms face record total £168m fine after sewage investigation
Julia Kollewe
Thames, Yorkshire and Northumbrian Water will be fined a record £168m between them for a “catalogue of failure” over illegal sewage discharges into rivers and the sea after the industry regulator’s biggest ever investigation.
The water regulator for England and Wales, Ofwat, has proposed penalties of £104m for Thames, £47m for Yorkshire and £17m for Northumbrian for failing to manage their wastewater treatment works and networks, including their operation of storm overflows. It said it was the first of more crackdowns to come.
Just in: a glimmer of hope that Germany’s economy is strengthening.
Factory orders at Europe’s largest economy jumped by 3.9% in June, official data shows, much stronger than expected.
🇩🇪 Germany German Factory Orders (MoM) (Jun) $EUR
Actual: 3.9% 🟢
Expected: 0.4%
Previous: -1.6%— PiQ (@PiQSuite) August 6, 2024
Germany is currently on the brink of recession, after its GDP fell in the second quarter of 2024 – a manufacturing revival would certainly help.
It’s a “challenging market environment” at the moment, points out Richard Flax, chief investment officer at Moneyfarm.
But.. Flax argues the recent selloff could be an opportunity to increase exposure to equities, if the US economy avoids recession and corporate profitability doesn’t wane in the slowdown:
The assumption of a soft landing for the US economy is coming into question – raising the question of whether the US Federal Reserve has waited too long to cut interest rates.
Our base case is still for a slowdown in the US without a deep recession, but we’ll continue to monitor macroeconomic data closely. The negative returns we’ve seen over the past few days are painful, but a normal part of long-term investing. It’s worth remembering that this downturn comes off the back of an extremely strong period of overall market performance.
We think that our portfolios are fairly conservatively positioned and well-diversified, and that there’s scope to add to risky assets like equities, and we’ll continue to assess the best time and way to do that.
Here’s our news story on the recovery on the Japanese stock market:
Australia’s Reserve bank leaves interest rates unchanged
Peter Hannam
Australia’s borrowers have been spared an interest rate rise as the Reserve Bank waits for more proof of a sustained drop in inflation and clearer signs of the severity of the financial markets tailspin before deciding its next move.
The central bank on Tuesday left its cash rate unchanged at 4.35% for a sixth meeting in a row. The decision was widely expected by economists after June quarter inflation largely met RBA’s forecasts and market turmoil began spreading around the world.
The RBA said inflation “in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.
“Data have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out,” it said, maintaining a stance it has had all year.
Analyst: there may be more pain to follow….
Matt Simpson, senior market analyst at City Index in Brisbane, cautions that there may be more turmoil ahead.
“The Nikkei’s enjoying a decent retracement against Monday’s plunge, as comments from the Fed’s (Mary) Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week.
But this is not exactly a risk-on rally. And we’re not yet sure if this is just a breather between water-boardings or there is more pain to follow.
Mary Daly, the president of the San Francisco Federal Reserve, said last night she expects US interest rates will be cut later this year.
Introduction: Nikkei bounces back on turbocharged turnaround Tuesday
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
What a difference a day makes! Some 24 hour ago, the financial markets were in retreat – now, they’re bouncing back.
After its biggest crash since 1987 on Monday, Japan’s Nikkei 225 index has rebounded strongly today. The Nikkei has just closed around 10% higher, after a day of strong buying activity, recovering much of yesterday’s 12.4% slump.
The Nikkei ended the day up 3,217 points, or 10.3%, at 34,675 point..
That’s a record points gain, but below its biggest ever percentage gain of 14.2% in October 2008.
South Korea’s KOSPI index is 3.7% higher, while Australia’s S&P/ASX 200 is up a modest 0.4%.
Jim Reid, strategist at Deutsche Bank, calls it “a turbocharged turnaround Tuesday in Asia”, telling clients jovially:
On certain measures, yesterday was the wildest day of my 29-year career and will make the rides I’m going on at Disney Land Paris this time next week seem a bit like the toddler rides at Peppa Pig World by comparison.
The future market predict indicate European markets, and Wall Street, will recover ground today too.
The UK’s FTSE 100 index is being called up around 1%, after dropping 2% yesterday.
Global stock market carnage was rampant y’day – S&P500 -3%, NASDAQ -3.4%, Europe Circa -1.9%. Oil $77, Bond yields dipped. This AM Nikkei +10%. Opening calls likely to post neurotic bear-squeeze-rally early doors – FTSE +62 @ 8070 DAX +161 @ 17490 CAC +61 @ 7219 DJIA +382 @ 39085
— David Buik (@truemagic68) August 6, 2024
The recent stock wobble has been blamed on several factors, including concerns that a US recession is approaching. Those fears were eased somewhat by strong service sector data yesterday, showing a rebound in new orders.
Another factor is the end of the cheap money era, after the Bank of Japan lifted interest rates last week, squeezing the ‘yen carry trade’ under which investors borrowed yen cheaply to spend on other assets.
Stephen Innes, managing partner at SPI Asset Management, says several factors – including rising volatility – were to blame:
While it’s easy to blame the usual suspect—the carry trade circus—a closer look reveals that there isn’t just one villain in this story. Given the economic climate, the yen carry and other leveraged bets were indeed skating on thin ice. The Bank of Japan might have missed an opportunity to pre-signal a rate hike, and the Fed’s decision to hold rates steady didn’t exactly calm the waters. And let’s not even start on the overinflated tech bubble on Wall Street—a ticking time bomb waiting to go off.
But honestly, we’ve witnessed the perfect storm of market dysfunctions, glaringly apparent during those wild VIX surges when the market’s capacity to manage risk vanished. This was more than just a few bad calls or risky bets going south—imagine a game of hot potato with high-stakes assets, and suddenly, everyone’s hands are full. The higher the VIX, the fewer takers there are for another toss, leading to a market scenario that’s more about dodging than catching.
Chicago Fed Bank president Austan Goolsbee made an effort to calm markets yesterday, telling CNBC that it is “not looking yet like recession”, despite Friday’s slowdown in job creation.
That didn’t prevent Wall Street posting its worst drop in almost two years last night, though:
Today’s calm could be due to a stabilisation in the yen. It is trading around ¥145/$ – having surged from ¥160/$ in early July to ¥141/$ yesterday.
Traders will be looking for signs that policymakers will respond to concerns over economic growth, such as by cutting US interest rates.
Market pricing in 98% odds of a 50bp rate cut in Sept, with a 75bp cut entering the picture. The Fed may need to cut a lot sooner to support the Yen and prevent the US equity market from a quick dive into bear territory, because right now, that’s looking fairly likely.
— Jason Brooks (@brookskcbsradio) August 5, 2024
The agenda
-
7am BST: German factory orders for June 7amabrdn
-
8.30am BST: Eurozone construction PMI for July
-
9.30am BST: UK construction PMI for July
-
1.30pm BST: US trade data for June
-
3.10pm BST: RealClearMarkets/TIPP index of US Economic Optimism
