CFIC Introduction
Looking ahead, since there is less risk of a reversal of the carry trade in markets other than Japan, the market is expected to stabilize after the global stock market decline slows down and some panic is released, and the probability of another "Black Monday" in the short term is unlikely.
Original title: Economic Hot Questions and Answers|Will the global market meet "Black Monday" again in the short term?
The stock markets of many countries around the world suffered "Black Monday" on the 5th. In the Asia-Pacific market, the sharp decline in Japan and Korea stock markets triggered the circuit breaker mechanism; European stock markets also experienced heavy losses, with major stock indexes opening sharply lower; In the New York stock market of United States, the S&P 500 index recorded its biggest one-day decline since September 2022, and the market value of the Nasdaq 100 index evaporated by $907 billion.
The Asia-Pacific market rebounded after opening on the 6th, but investors were still apprehensive about the previous day's plunge. How will the continued appreciation of the yen and recession fears in the United States affect investor confidence? Will there be a recurrence of the global market crash in a short period of time?
Pedestrians walk past an electronic screen showing real-time stock prices in Tokyo, Japan, on August 5. Photo by Xinhua News Agency reporter Yue Chenxing
How hard countries have fallen
Following last Friday's sharp decline, the Tokyo stock market plunged again on the 5th. By the end of the day, the Nikkei stock index fell 12.40%, and the Topix stock index fell 12.23%, erasing all gains since 2024. Due to the panic selling of investors, futures trading on the Nikkei Stock Index and the Topix Stock Index on the Osaka Stock Exchange triggered a circuit breaker mechanism and was forced to suspend trading.
The Korea Composite Stock Price Index and the ChiNext Gosdaq Index both fell by more than 8% after the opening of the day, both triggering the circuit breaker protection mechanism. This is the first time since March 19, 2020 that the circuit breaker mechanism has been triggered in the Korea stock market. On the same day, Samsung Electronics fell more than 10%, the largest decline since 2008.
Staff work in front of the stock index information screen of Hana Bank in Seoul, Korea, on August 5. Photo by Xinhua News Agency reporter Yao Qilin
In addition, Singapore's Straits Times Index, Australia's ASX 200 Index, Indonesia's Composite Index, New Zealand's NZX 50 Index and India's Sensex 30 Index also fell across the board.
The Euro Stoxx 50, Germany's DAX, United Kingdom's FTSE 100 and France's CAC 40 all fell significantly. After the opening of the Turkey stock market, the market circuit breaker mechanism was triggered twice.
In the United States stock market, the three major stock indexes closed sharply lower. Among them, the Nasdaq Composite Index fell more than 6% at the beginning of the session, and the closing decline narrowed to 3.43%. On the day, technology stocks extended their decline, with Apple closing down 4.82%.
Previously, due to United States series of economic data that fell less than expected, the three major stock indexes of the New York stock market fell sharply in the first two trading days of August, with the Dow Jones Industrial Average, the S&P 500 stock index and the Nasdaq Composite Index falling by 2.71%, 3.18% and 4.68% respectively.
What is the global general decline?
Analysts point out that, on the surface, the "Black Monday" that began in the Japan stock market was caused by the bursting of the bubble of financial assets detached from real economic growth caused by the recent sharp appreciation of the yen hitting the Japan stock market. At its root, the spread of panic among investors about a recession in the United States economy due to weaker-than-expected United States economic data is an important reason for the global market shock.
Previously, as Japan's policy rate was at a very low level in the world, the yen was also one of the most suitable financing currencies for carry trades. Since the end of last year, the yen has depreciated sharply against the dollar. However, since mid-July, the yen has rebounded strongly against the US dollar due to a combination of factors such as the foreign exchange intervention of the Bank of Japan, the strengthening of United States interest rate cut expectations and the surprise interest rate hike by the Bank of Japan.
From a fundamental point of view, the strengthening of the yen exchange rate is bearish for the Japan stock market, which is not conducive to Japan's exports and domestic corporate financing, nor is it conducive to financing consumption; On the capital side, a stronger yen is also bearish for the Japan stock market, making carry trades lose money, causing funds to sell stocks to pay off debt.
Analysts in many markets pointed out that fundamentally, in the absence of significant changes in the economic fundamentals of many countries, the deep-seated reason for the global market plunge is that the market's expectations for the United States recession are continuing to increase.
On August 5, traders work on the trading floor of the New York Stock Exchange in the United States. Xinhua News Agency (photo by Guo Ke)
United States the latest official data shows that the number of new jobs in the non-farm sector in July United States was significantly lower than market expectations, and the unemployment rate in the month was higher than market expectations. The United States manufacturing index came in at 46.8 in July, down from 48.5 in June and further away from the boom and bust line of 50.
At present, the market's extreme concern about inflation in the United States has turned into extreme concern about slowing economic growth. Market participants generally believe that Fed Chairman Jerome Powell's speech after the July 31 interest rate meeting did not bring anything new, but as always, hinted at a rate cut in September.
Choi Sang-mo, deputy prime minister and minister of strategy and finance of Korea, said on the 5th that due to concerns about the slowdown of the United States economy, the volatility of the global financial market has increased significantly. "Han Minzu Daily" reported on the 2nd that the United States economic indicator data was far lower than market expectations, amplifying the market's vigilance for economic recession.
The team led by Goldman Sachs Chief Economist Jan · Hachus released a report on the 4th, raising the probability of United States falling into recession in the coming year from 15% to 25%.
Will "Black Monday" be repeated?
Looking ahead, since there is less risk of a reversal of the carry trade in markets other than Japan, the market is expected to stabilize after the global stock market decline slows down and some panic is released, and the probability of another "Black Monday" in the short term is unlikely.
In the medium to long term, once the Fed starts to cut interest rates, many central banks may also adopt accommodative monetary policy, which will increase global capital liquidity, but this does not ensure that "Black Monday" will not be repeated.
The Federal Reserve Board of United States announced on July 31 that it would keep the target range for the federal funds rate unchanged between 5.25% and 5.5%. The Fed said it could cut interest rates in September if progress continues to be made in the fight against inflation. As the dampening effects of high interest rates on the economy continue to emerge, some economists have worried that the Fed's slow action could pose risks to the United States economy.
"It's a market tantrum," JPMorgan Chase & Co. portfolio manager Priya · Misra said of Black Monday, "and I think the market will continue to panic until the Fed shows signs of action." ”
Previously, in response to the impact of the new crown epidemic on the world economy, many central banks have chosen to adopt loose monetary policies to inject liquidity into the market. While the ultra-low interest rate environment has supported the global economic recovery, it has also brought side effects such as high inflation and financial asset price bubbles.
After lowering the interest rate range to near zero in March 2020 and carrying out an unprecedented monetary "big release", the Federal Reserve made a "sharp U-turn" in March 2022 and began to raise interest rates aggressively to combat inflation, bringing serious spillover effects to the world economy and causing many rounds of sharp depreciation of many non-US currencies.
In the "dollar tide" formed by the Fed's interest rate cuts and interest rate hikes, the United States continues to harvest global wealth and pass on its own crises, which continues to cause turmoil in the international market.
In addition, to a certain extent, "Black Monday" also reflects the recent growing concerns about the global economic outlook and the intensification of geopolitical conflicts in the international market, and the expectations have changed significantly.
The United Kingdom's "Economist" published an article saying that until recently, "bad news is good news" was still the market's mantra. But when United States employment data was released on the 2nd, people's sentiment had changed: bad news is now bad news. The CBOE volatility index, also known as the "fear index," has soared to its highest level since last year's regional banking crisis in the United States. The price of gold, which has traditionally been considered a safe-haven asset, also fell significantly.
Source of this article: Xinhua Vision
Author: Yu Rong
WeChat editor: Wang Qian
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