Tokyo — Japanese stocks rebounded dramatically on Tuesday, with the Nikkei 225 index soaring over 10%, marking a significant recovery from the previous day’s historic plunge. This rally provided some relief to global markets, which had been severely impacted by the sell-off.
Market Rebound
On Tuesday, the Nikkei 225 index closed up 10.3%, rising by 3,217 points to reach 34,675, achieving a record daily points increase. This rebound followed a 12.4% drop on Monday, which was the biggest fall the index had seen in 37 years. Other Asian markets also showed signs of stabilization:
South Korea’s Kospi: Increased by 3%
Australia’s ASX200: Rose 0.4%
Hong Kong’s Hang Seng: Remained steady in morning trading
Global Market Impact
The sharp decline on Monday triggered a global market rout reminiscent of the Black Monday crash in 1987, affecting markets in Europe and the US:
Wall Street: Experienced its worst day in nearly two years
European Markets: Also saw significant losses, with Britain’s FTSE 100 suffering its steepest one-day decline in over a year
The sell-off began on Friday, driven by fears of a slowing US economy, following a report that showed a significant slowdown in US hiring.
This raised concerns that the Federal Reserve’s high-interest rates, aimed at controlling inflation, might be excessively slowing down the economy.
Contributing Factors
Professional investors pointed to several factors contributing to the market turbulence:
Bank of Japan’s Interest Rate Hike: Last week, the Bank of Japan raised its main interest rate from nearly zero. While this move helped boost the value of the Japanese yen, it also led to the unwinding of carry trades, where investors borrowed cheaply in Japan to invest in higher-yielding assets elsewhere.
US Economic Data: Weaker-than-expected economic data from the US, particularly the slowdown in hiring, heightened fears of a recession.
Federal Reserve’s Policy: Comments from Federal Reserve officials aimed to reassure markets. Fed San Francisco President Mary Daly emphasized the importance of preventing the labor market from tipping into a downturn and suggested that the Fed was open to cutting interest rates if necessary. This supported market expectations of a potential 50 basis points rate cut at the Fed’s September meeting, with futures implying an 87% chance of such a move.
Market Outlook
Chris Weston, head of research at broker Pepperstone, predicted a solid counter-rally following Monday’s historic market movements. The rebound in Japanese stocks and the stabilization of other Asian markets suggest a temporary respite from the extreme volatility. However, the long-term outlook remains uncertain, with ongoing concerns about the global economic slowdown and the potential impact of further monetary policy changes.
As markets continue to react to economic data and policy decisions, investors are advised to remain cautious and stay informed about potential developments that could affect global financial stability.
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