The main index of the Tokyo Stock Exchange, the Nikkei 225, fell by as much as 13.5 percent on Monday. This is the biggest drop since “Black Monday” on October 19, 1987. Toyota shares lost 19 percent, Subaru 18.3 percent, Mitsubishi 17.9 percent, and Honda 17.8 percent. Japanese banks also saw sharp declines. The “waterfall formation” can also be seen on the charts of the Seoul Stock Exchange, whose KOSPI index lost 8.8 percent. Interestingly, Chinese indices lost relatively little, about 1.5 percent each.
The declines have also spread to Europe, although here their scale is much smaller and it is difficult to talk about a crash, and the proper name is rather a “strong decline”. The German DAX is losing over 2 percent, as is the French CAC40 and the European index of key companies Euro Stoxx 50. Serious declines concern the stock exchange in Turkey, where the BIST 100 index is losing 5 percent. The Warsaw WIG20 is already down over three percent.
Among the largest Polish companies, the leaders in declines with 3-4 percent price reductions in Warsaw are: Cyfrowy Polsat, Pekao, debt collection company Kruk, CD Projekt, JSW, KGHM. The last three companies base their revenues on exports, and the złoty strengthened against the dollar on Monday by 0.2 percent, although on the other hand it weakened against the euro by 0.3 percent.
Currencies rocked the stock markets
What is the reason for all this fuss? In the case of Japan, it is the effect of the yen strengthening against the dollar by as much as 2.6 percent, which will drastically reduce the profits of export giants. Hence, the largest declines are among the leading Japanese car companies. But why is the yen strengthening against the dollar? Weak results have recently come from the US.
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Friday’s data from the US labour market turned out to be bad. Unemployment is rising faster than expected to 4.3% in July from the forecasted 4.1% and 4.1% a month earlier. According to data comparable to unemployment from the Central Statistical Office (U6), it is 7.8% from 7.4% in June. And new jobs are appearing slower than expected. Their number increased in the private sector by only 97 thousand in July, although 148 thousand were expected. This data weakened the dollar and thus hit all economies whose condition is based on exports.
Fears of a U.S. recession have prompted investors to flee risk. They see that big Fed rate cuts will be necessary to save economic growth. Chicago commodities markets are now betting on a 94.5 percent chance of a 0.5 percentage point rate cut in September. Not long ago, the cut was thought to be no more than 0.25 percentage points.
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Safe-haven currencies like the yen and the Swiss franc surged against the dollar, with speculation that some investors were getting rid of profitable trades to make money to cover losses elsewhere. Such was the flood of selling that stock exchanges across Asia were putting “circuit breakers” in place, halting trading to give investors time to consider whether they were acting rationally.
On Monday, the US over-the-counter market saw a drop of as much as 8.7 percent. Nvidia shares, the recent growth leadero 7,5 proc. Apple, o 5,5 proc. Tesli, a o 3,9 proc. Intela, Microsoft traci 4,6 proc., a Amazon 2,9 proc.
Treasury bonds, on the other hand, are in high demand. The yield on 10-year U.S. bonds hit 3.723 percent, the lowest level since mid-2023, after rising to 3.737, Reuters reports.
