Author | Yang Bo (columnist of Jiugua financial circle)
Yang Bo commented
1. On August 5, 2024, a Black Monday that is extremely rare in the global capital market, the Japanese and South Korean stock markets both fused, and the Japanese stock market was fused twice, the Nikkei 225 index plunged more than 5,000 points intraday, closing down 12.4%, and the Korea KOSPI index fell 8.77%, also close to the fall limit, and the Chinese Taiwan stock market closed down as much as 8.4%. The European stock market, which had just opened in the afternoon, also fell significantly, and the US stock market in the evening was unsurprisingly another bearish day.
2. Judging from the index decline of the Japanese and South Korean stock markets, this scene is almost a repetition of the financial turmoil in 2008, far exceeding the stock market fluctuations caused by the global spread of the epidemic in the spring of 2020, which in turn directly affected the joint plunge of Bitcoin and other markets, considering the sharp rise in the yen exchange rate, the US dollar against the yen exchange rate has now fallen below the 144 mark, with an intraday decline of nearly 2%, which is already a shocking fluctuation in the foreign exchange market. It is almost the main culprit of this market shock.
3, "yen arbitrage trade" has long been an important way for hedge funds and other investment institutions to obtain low-cost financing, because the Bank of Japan's long-term adherence to the zero interest rate policy, coupled with the decline of the yen in recent years, this year's lowest has broken through the historical low of 160, which makes the institutions holding the dollar for the yen and betting on Japanese stocks profitable, which is also an important driver of the bull market in the past two years of Japanese stocks, the crazy rise of the Nikkei 225 index this year is almost a replica of the era of Japan's bubble economy, Not long ago, it broke through the 40,000-point mark, and hit an all-time high of 42,426.77 points.
4. Interestingly, the time when Japanese stocks hit this all-time high is July 11, 2024, that is, less than a month ago, in other words, in less than a month, Japanese stocks fell by nearly 25%, and the Nikkei 225 index lost more than 10,000 points. Figuratively speaking, the Japanese stock market has lost the entire A-share market in less than a month.
5. Considering that the decline of Japanese stocks in the last three trading days was 2.5%, 5.8% and 12.4%, from 38,000 points to 31,000 points, under this historical level of decline, the Bank of Japan and even the Japan government must intervene, because relying on market forces alone cannot stabilize the market, and can only rely on simple and crude administrative forces to stop the fall, it is conceivable that the first wave of intervention is the foreign exchange market, so that the yen exchange rate will become stronger, The second is to buy a large number of blue chips in Japanese stocks.
6. Therefore, the author believes that under the intervention of administrative forces, the probability of Japanese stocks will stop falling in the short term at 30,000 points, and the risk of panic in the market will also fall sharply, but after the ebb tide of foreign capital, whether Japanese stocks will become like Japan's GDP will become a long bear market trend of boiled frogs depends on the performance of Japan's listed companies, after all, the stock market will eventually return to the fundamentals of listed companies, and the fundamentals of listed companies determine the medium and long-term economic trend of a country.
7. As for the next trend of the U.S. stock market, in fact, you only need to look at one company, and that is Nvidia. The reason is very simple, Nvidia is the leading big brother in this round of AI bull market in US stocks, so under the risk of market panic, Nvidia will inevitably become the target of the collective smashing of the short market, Nvidia's $3 trillion market value will become the turning point of this round of US stock super bull market, and the next period of time will depend on the pace of the Fed's interest rate cuts.
8. Considering that November this year is the United States election, before the election, the ruling Democratic camp absolutely does not want to see the US stock bull market come to an abrupt end, and will definitely use various means to affect the Fed's interest rate cut rhythm.
But in the author's opinion, this round of super bull market in U.S. stocks for more than 15 years is already rare in history, no matter how interest rates are cut in the future, judging from Buffett's move to cut half of Apple's holdings, the next half year should be the remaining time for U.S. stocks.
Japan's stock market fell its biggest since 1987
Affected by multiple factors such as investors' concerns about the weaker-than-expected economic outlook in United States and the Bank of Japan's interest rate hike, the Tokyo stock market in Japan continued to plunge today (August 5) after the last trading day of last week. At the close of trading on the 5th, the Nikkei 225 Index fell 4451.28 points from the previous trading day to 31458.42 points, during which the circuit breaker mechanism was triggered twice, the largest decline since 1987.
Less than an hour after the opening of early trading on the 5th, the Nikkei stock index fell by more than 2,000 points. At the close of early trading, the Nikkei 225 Stock Average fell 4.63% to 34,247.56, while the Tokyo Stock Exchange's Stock Price Index fell 5.73% to 2,392.27.
After the afternoon opened, the two major stock indexes in Tokyo continued to fall, and the Nikkei and Topix both fell more than 12% at the close. The Nikkei stock index fell more than 4,400 points, surpassing the record of 3,836.48 points in 1987 and setting a new single-day decline.
The stock prices of financial institutions such as Mitsubishi UFJ Bank and Mizuho Bank fell sharply, among which the stock price of Mitsubishi UFJ Bank plummeted by 21% at one point, and the stock price hit a record low. In addition, the stock prices of well-known companies such as Nintendo also fell sharply, with Nintendo's shares falling nearly 12%, the largest intraday decline since July 2016. In addition, Japan government bond futures trigger circuit breakers.
Regarding today's rapid decline in the stock market, Japan's Chief Cabinet Secretary Yoshimasa Hayashi said that the Japan government will continue to observe market trends and stabilize economic and financial operations.
Affected by the collapse of the external stock market, cross-border ETFs continued to fall, Japan the Topix Index ETF (513800), Nikkei 225 ETF (513880), and Nasdaq Technology ETF (159509) fell in the afternoon, and the Nasdaq ETF (513300), Nikkei 225 ETF E Fund (513000), Nasdaq ETF (513100), Nikkei ETF (159866), etc. fell more than 9%.
On the news side, at the opening of trading on Monday, the dollar fell below the 146 mark against the yen for the first time since February this year, and the intraday decline once extended to 0.39%.
The plunge in Asia-Pacific equities may be directly related to the broad-based closing of U.S. stocks on Friday. On August 2, the three major stock indexes of United States fell across the board, and chip stocks performed weakly, as of the close, the Dow fell 1.51% to 39737.26 points, the S&P 500 index fell 1.84% to 5346.56 points, and the Nasdaq fell 2.43% to 16776.16 points.
It should be noted that the United States non-farm payrolls data for July came in lower than expected. United States seasonally adjusted nonfarm payrolls recorded 114,000 in July, the smallest increase since April 2024 and well below expectations of 175,000. Meanwhile, the unemployment rate in the United States unexpectedly rose to 4.3% in July, and the pace of private sector hiring fell to its lowest level in 16 months.
In addition, the minutes of the June policy meeting of the Bank of Japan also had an important impact on the direction of the market. According to the minutes, some members believed that the Bank of Japan must raise interest rates at the right time without hesitation. This "hawkish" policy signal has exacerbated market concerns about the outlook for the Japan economy, with investors fearing that the Japan central bank's interest rate hike plan will lead to outflows from Japan stock markets, triggering further declines in the market.
Last week, the Bank of Japan announced a rate hike, raising its policy rate by 15 basis points to 0.15% to 0.25% and announcing a gradual reduction in monthly bond purchases to 3 trillion yen, tightening more than the market expected.
At that time, after the announcement of the interest rate hike, the Japan stock market rebounded, with the Nikkei 225 Index and the Topix Index closing up 1.49% and 1.45% respectively on the day. But in the past trading day alone, both major indices have fallen sharply on Thursday and Friday.
In view of the recent sharp decline in Asia-Pacific stock markets across the board, some analysts believe that it may be related to the yen carry interest. Historically, the movements of the yen and Japan's interest rates in 2000 and 2007 triggered huge shocks in global capital markets. Behind this may be the reversal of the carry trade, which will put pressure on equity markets and commodities.
Korea's two major stock indexes both triggered the circuit breaker
On August 5, local time, the two major stock indexes of the Korea stock market both triggered the circuit breaker mechanism. The Korea Composite Stock Price Index (KOSPI) fell more than 10% intraday, falling below the 2,400-point mark, triggering the circuit breaker. At the close, the Korea Composite Stock Price Index fell 8.77%.
Korea said that today's stock market decline was "excessive", that foreign exchange and stock markets will be closely monitored, and market stabilization measures will be taken quickly if necessary.
In addition, at the close, Australia's S&P/ASX 200 index fell 3.58%, its lowest level since the end of June.
China's Taiwan Weighted Index closed down 1,807.21 points, or 8.35%, at 19,830.88.
In addition, U.S. stock index futures extended losses, with Nasdaq futures down 5.6% and S&P 500 futures down 3.04%.
Major European stock indexes extended losses
On August 5, major European stock indexes extended their declines, with the Euro Stoxx 50 index falling more than 3%
As of press time, Germany's DAX index fell 2.15%, United Kingdom's FTSE 100 index fell 2.15%, France's CAC 40 index fell 2.44%, and Italy's main stock index fell 3.38%, a decline that exceeded Black Monday in October 1987.
Separately, Norway's Oslo stock index plunged 4.2%, on track for its biggest one-day drop since March 2020. The Sweden Blue Chip Index plunged 3.9% to post its biggest drop since March 2023.
Denmark's Copenhagen stock market blue chip index fell 5.5% at the beginning of the session, on track for its biggest drop since March 2020.
The Euro Stoxx 600 bank index plunged 4.6% to its lowest level since March, and the Euro Stoxx 600 technology index plunged 5.1% to its lowest since January. European listed semiconductor companies ASML, ASMI and BESI plunged 6.6%, 12% and 11% respectively at the beginning of the session.
U.S. stock futures extended losses
Data on the 2nd showed that United States non-farm payrolls hit one of the weakest records since the epidemic, and the unemployment rate unexpectedly climbed above the Fed's year-end forecast, triggering investors' concerns that the Fed would raise interest rates too late, causing global stock markets to suffer a panic sell-off.
During today's Asia-Pacific trading session, U.S. and European stock futures also extended their decline. As of 1 p.m., U.S. stock futures extended losses, with Nasdaq futures down 3.6% and S&P 500 futures down 1.7%. European stock index futures fell sharply, with Germany's DAX futures down 1%, France's CAC 40 futures down 1.7%, Euro Stoxx 50 futures down 1% and United Kingdom's FTSE 100 futures down 0.5%.
Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore, said, "This is a conspiracy that triggers risk aversion. First, the Bank of Japan signaled further policy tightening, and then the Fed was seen as likely to be too slow to cut interest rates. Goldman Sachs' team of economists recently raised the probability of a United States recession next year from 15% to 25%.
Shane Oliver, head of investment strategy and chief economist at investment manager AMP, said that global stock markets seem to be in the process of correcting and that it is still not suitable for dipping. He said that the Fed's interest rate cut may boost the stock market in the next 6~2 months, but even assuming that the United States recession is avoided, the global stock market currently "still looks prone to further decline, and it is too early to bottom."
The virtual currency market has been in a state of panic
Driven by factors such as global stock market turmoil and geopolitical risks, the crypto market has seen a round of liquidation panic.
After falling below $60,000 on August 4, Bitcoin suddenly dived again at around 8 a.m. on August 5, briefly falling below $53,000, hitting a new low in recent months. Since August 2, more than $500 billion has been wiped out in the market, the largest three-day sell-off in nearly a year.
Bitcoin's fall coincided with the decline of other virtual currencies across the board. Ethereum (ETH) fell more than 20% in 24 hours, briefly falling below $2,200 and also hitting a new low in recent months. Among the top 10 tokens with the largest market capitalization, Solana has been hit the hardest, falling by more than 30% since July 30.
The previously hot altcoin market also ushered in a "waterfall decline", and popular currencies such as PEPE, BOME, WLD, and AEVO were only a fraction of their previous highs in a short period of time.
According to Coinglass data, in the past 24 hours, a total of 258,000 people in the virtual currency market have liquidated, with a total amount of 966 million US dollars (about 6.99 billion yuan), of which 787 million US dollars have been liquidated by long orders and 179 million US dollars have been liquidated by short orders.
Industry insiders said that bitcoin was sluggish this week, mainly due to increased geopolitical uncertainty and the market's risk aversion spread to virtual currency assets. In addition, high expectations and speculation on the Bitcoin halving event may push the price higher before the halving, and if these expectations are not met, a large number of investors may be inclined to take profits, causing the price to plummet.
Panic is rife in the market
Behind the plunge in Japanese stocks, there are multiple shocks superimposed.
According to CCTV News, the Bank of Japan decided to raise interest rates and reduce government bond purchases at its monetary policy meeting that ended on July 31. Raise the policy rate from 0% to 0.1% to around 0.25%. As a result, the yen appreciated sharply against the dollar, appreciating more than 4 yen in a single day, reaching a high in more than four months.
Due to the volatility of the foreign exchange market caused by interest rate hikes, coupled with investors' concerns about the economic outlook of United States and the performance of high-tech companies falling short of expectations, the stock market in Tokyo, Japan, has plummeted on August 2. By the end of the day, the Nikkei 225 Stock Average fell 2,216.63 points, or 5.81%, the second largest drop in history. The Tokyo Stock Exchange's stock price index fell 6.14%.
At the same time, the non-farm payrolls data released by United States last week fell short of expectations. According to data released by the United States Ministry of Labor on the 2nd, the new jobs in the non-agricultural sector in July United States were significantly lower than market expectations, and the unemployment rate in the month was higher than market expectations. On the same day, United States Commerce Department data showed that new orders for manufactured goods fell 3.3% month-on-month in June United States, compared with a 0.5% month-on-month decline in May. In addition, data released by the United States Institute of Supply Management on the 1st showed that the United States manufacturing index was 46.8 in July, down from 48.5 in June, further away from the 50 boom and bust line.
The three major indexes of the New York stock market fell sharply in the first two trading days of August due to a series of weaker-than-expected economic data in the United States that triggered recession fears, with the Dow Jones Industrial Average, the S&P 500 stock index and the Nasdaq Composite Index falling 2.71%, 3.18% and 4.68% respectively.
Fears of a recession in the United States economy and panic spread across the market, sending New York stocks down and the dollar weakening sharply. Against this backdrop, there was a panic sell-off in the Tokyo stock market.
Some analysts said that overseas investors are stepping up their sell-off of Japan stocks due to the appreciation of the yen and the decline of Japanese stocks. The plunge has undoubtedly weighed heavily on investor sentiment, and it may take quite some time for some investors to return to the Japan stock market again.
According to CME "Fed Watch" data, the Fed's interest rate cut in September is almost "a certainty". However, analysts reminded that although the Fed's interest rate cut in September is a high probability event, the previous interest rate meeting is more like "tai chi", and the United States economy is in a stage that we are not familiar with, and even if the interest rate cut in September does not mean that there will be a series of interest rate cuts in the future.
Open a trade that rises in the east and falls in the west?
Compared with the surrounding stock markets, the China A-share market and the Hong Kong stock market have performed relatively strongly. As of the close of trading on the 5th, the Shanghai Composite Index fell 1.54%, the CSI 300 Index fell 1.21%, and the Hang Seng Index narrowed its decline at the end of the session, falling 1.55%.
However, judging from the performance of thematic ETFs today, ETFs in the chip semiconductor and communication industries have also suffered heavy losses.
Among the top thematic ETFs in terms of turnover, several ETFs in the semiconductor and chip fields fell by more than 4%, the communication ETF (515880) under Cathay Fund fell by more than 5%, only the wine ETF (512690) and the game ETF (159869) remained in the red, and many ETFs in the pharmaceutical industry were also more resistant.
In terms of individual stocks, among the top 10 companies in the two cities in terms of turnover, CPO concept leading stocks such as Zhongji Innolight, Industrial Fortune Union, Lixun Precision, and Xin Yisheng collectively fell sharply.
Kweichow Moutai rose 1.77% against the market, and in July, the big bull stock public transportation was the first in the two cities to close the limit, showing that the impact of the sharp decline on the sentiment of A-shares is still limited.
In terms of heavyweight stocks, among the 50 constituent stocks of the Shanghai Stock Exchange, in addition to chip stocks, Chinese stocks such as PetroChina and China Shipbuilding that have risen significantly during the year are also listed, but the performance of the four major banks and the insurance industry has significantly resisted the decline.
Market perception
CICC: Three reasons led to the collapse of Japan's stock market
High volatility is characteristic of Japan assets. The exchange rate between Japan stocks and the yen has always fluctuated. Historically, Japanese stocks have a positive correlation with U.S. stocks, and Japanese stocks are more resilient than United States stocks (when U.S. stocks rise, Japanese stocks rise more than U.S. stocks; When U.S. stocks fell, Japanese stocks also fell more than U.S. stocks); The same is true for exchange rates, with the Japanese yen often being the strongest or weakest currency in the weekly G10 currency rankings. Therefore, we have been cautioning investors to be aware of the risk of high asset volatility in Japan.
Guotai Junan: In the end, it was gold that came out of the circle
Gold is still blooming, which is probably the only or only mainstream trade that is still "alive", and the only one is because Bitcoin is still stable. The dollar is falling, gold is rising, and the logic seems to be very strong. Of course, when the dollar rises, gold remains hawkish. So in the end, it's gold that comes out of the circle.
Huafu Research: Analysis of the global impact of Japan's interest rate hike
Looking ahead, we believe that the rally in Japan's stock market since 2013 is closely related to the Bank of Japan's more aggressive QQE policy and its relentless efforts to loosen its balance sheet significantly. A sharp tightening of Japan's monetary policy will have an impact on the Japan stock market, and risks may also be transmitted to the European and American markets. In the short term, it is recommended to avoid the risk of a correction in overseas stock markets. In the long run, with the Fed's interest rate cut expectations approaching and the pressure of rapid yen depreciation easing, the Bank of Japan's monetary policy adjustment will usher in greater flexibility, and if Japan learns from the past and carefully assesses the timing of future interest rate hikes, then with the sharp adjustment of the Japan stock market, the Japan stock market may re-usher in allocation opportunities.
AVIC Securities: The stage bottom may have been formed, and the market may turn to "rise in the east and fall in the west" trading
United States economic data weakened again, and U.S. stocks briefly experienced a "recession trade". At the same time, the Fed is gradually approaching a rate cut, opening up space for domestic monetary policy. The follow-up domestic steady growth is likely to increase, the market's confidence in the economic recovery is enhanced, the sentiment is improving, and the short-term phased market bottom may have been formed, and the future may turn to "rising in the east and falling in the west" trading.
China Securities Construction Investment: Two important issues in the "East Rising and West Falling" transaction
There seem to be signs of "counterflow" in global dollar liquidity, the RMB exchange rate jumped during the week, northbound funds once flowed rapidly, and the market launched a trading narrative of "rising in the east and falling in the west".
In the past, the risk bias of Chinese assets was suppressed by two major factors, one is the lack of effective demand, and the other is the strong dollar, and the current global tight dollar liquidity has been loosened.
Behind the trading of rising in the east and falling in the west, the market really pays attention to two macro issues:
Is United States on a hard landing? With short-term disruptions to the July unemployment rate, a relatively healthy United States private sector balance sheet, and plenty of room for monetary easing in the United States, we do not recommend trading too much left for a hard landing in the United States.
Zhejiang fixed income: four new changes in overseas markets, will the United States economy recession?
Judging from the sharp rise in the Nasdaq, the overall market may not be as prosperous as the index reflects. In 2023, the Nasdaq has grown by 43% for the year, while the number of companies rising in its constituents is only 49.61%, in stark contrast. As of August 2, 2024, the proportion of companies whose NASDAQ constituents rose further fell back to 43.02%. In the context of limited market breadth, the performance of heavyweight stocks has become the key to the market trend.
In the week from July 28 to August 2, Tesla, Google, Amazon and many other companies released semi-annual reports, and the overall performance was not optimistic, which became the main reason for the pullback in this round of U.S. stocks. Overall, United States signs of economic recession have cast a shadow on the outlook for U.S. stocks, coupled with the disturbance of unfavorable factors such as overseas capital outflows and the mediocre performance of leading stocks, which may accelerate investors' profit-taking behavior, and U.S. stocks may usher in a period of adjustment.
(Comprehensive National Business Daily, China Business News, etc.)