Another crash! Japanese stocks and Japanese bonds triggered circuit breakers, directly entering a bear market
Japanese stocks and bonds trigger circuit breakers, entering a bear market. The Nikkei 225 index's decline expands to 7%, falling into a technical bear market. Japan's TOPIX bank stock index's decline expands to 9%, triggering circuit breakers and entering a technical bear market. Japanese government bond futures trigger circuit breakers, with the 10-year government bond yield falling by 17 basis points. South Korea's KOSPI index falls by over 3%, while Australia's S&P/ASX 200 index's decline expands to 2.1%. Nasdaq 100 index futures' decline expands to 2%. Spot gold plunges by 1%, and U.S. bond yields drop to the lowest level. Global traders are concerned about the Fed falling behind in rate cuts, with a heavy sense of pessimism in the market. Berkshire Hathaway's sale of Apple shares is seen as negative. Escalating conflicts in the Middle East, investors prepare for turbulence
On Monday (August 5th), the Asian market continued its sharp decline, with the Japanese and South Korean stock markets opening low and continuing to fall.
As of the time of writing, the Nikkei 225 index continued its downward trend, with a decline expanding to 7%, dropping more than 20% from the historical high in July, entering a technical bear market; the Japanese TOPIX bank stock index saw its decline expand to 9%, triggering a circuit breaker to the downside, dropping 20% from the July peak, entering a technical bear market. The Nikkei 225 volatility index surged by 50%, reaching the highest level since April 2020. Japanese government bond futures triggered a circuit breaker, with the 10-year Japanese government bond yield falling to 0.785%, a decrease of 17 basis points intraday.
At the same time, the South Korean KOSPI index fell by over 3%, and the Australian S&P/ASX 200 index saw its decline expand to 2.1%. Nasdaq 100 index futures extended their decline to 2%.
Spot gold took a short-term dive of $15, currently trading at $2419.73 per ounce, down 1% intraday. The most active COMEX gold futures contract saw 1,118 lots traded in a minute from 08:17 to 08:18 Beijing time, with a total contract value of $275 million; from 08:30 to 08:31, 688 lots were traded in a minute, with a total contract value of $170 million.
The 10-year U.S. Treasury yield dropped to 3.77%, the lowest level since July 2023. The U.S. 2-year Treasury yield fell by 9 basis points to the lowest level since May 2023. The U.S. dollar index weakened, with the USD/JPY exchange rate widening its decline to nearly 0.9%.
Concerns about further slowdown in the U.S. economy have made global traders uneasy, fearing that the Federal Reserve may lag behind in interest rate cuts. In addition, the market sentiment is pessimistic due to last Friday's Wall Street plunge and Berkshire Hathaway's disclosure over the weekend that it had reduced its stake in Apple by nearly half in the second quarter.
Berkshire's sell-off is "immediately seen as negative," said Mark Lehmann, CEO of Citizens JMP Securities. "Apple is a top player in the global consumer sector, and this is a statement on global consumers."
The escalating conflicts in the Middle East may add more turmoil to the market, as investors prepare for a turbulent second half of the year. Bond market volatility index is rising, and the VIX index - Wall Street's fear index - jumped to the highest level in nearly 18 months after weak U.S. employment report, intensifying concerns about an economic recession, while attention turns to the already chaotic U.S. presidential election "In the coming months, global and Australian stock markets appear poised for further declines, indicating that it is too early to buy in now," said Shane Oliver, Chief Economist and Head of Investment Strategy at Sydney Wealth Associates. "A correction is underway."
According to data compiled by Bloomberg, traders expect the Federal Reserve to cut interest rates by more than one percentage point in 2024, with the possibility of a significant 50 basis point cut in September. "With rising unemployment and core PCE inflation currently below the Fed's year-end forecast, we believe the risk balance favors the Fed taking more aggressive action," said Brian Rose, Senior US Economist at UBS Group AG's Wealth Management division. "We are revising our baseline to a 50 basis point rate cut in September, followed by 25 basis point cuts in November and December," he wrote in a note to clients.
"Better data this week may bring some confidence to the severely overbought bond market and reassure the stock and credit markets," wrote Chris Weston, Research Director at Pepperstone Group, in a report to clients. "Conversely, if data continues to weaken and central banks do not meet market expectations in their narratives, one thing seems clear: buying into risk in this round may not be as effective as before, while shorts will have a more prosperous hunting ground," he said.
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