2024-08-06 22:41:26
Market sentiment is improving
Japan’s Nikkei index, which covers shares of the 225 largest issuers traded on the Tokyo Stock Exchange, rose as much as 2,957.90 points, or 9.4 percent, on Tuesday after a sharp drop in prices this week. and reached 34,416.32 points.
Stock markets around the world suffered heavy losses after the index fell more than 12 percent on Monday.
Recently, with a significant rise in the exchange rate of the Japanese yen, the share prices of export-oriented Japanese companies began to decline.
However, traders report that market sentiment is improving as the yen begins to fall.
Investors are very tense
One day the Japanese Nikkei index falls by more than 12 percent, the next day it has already risen to a similar 10 percent. Such jumps raise questions: what is happening in the markets?
“It should be kept in mind that this week we won’t have any serious data from the US economy – they will be seen next week, so the next week can be quite stressful,” warned Citadele Bank economist Aleksandars Izgorodins while speaking to the portal lrytas.lt.
According to him, two things happened that led to such a fall in the stock markets.
First, over the past few weeks, US statistics have painted a picture of a much stronger slowdown than expected: for a long time, the US economy looked healthy despite high interest rates, and macro indicators began to deteriorate suddenly.
This has fueled fears among investors that the US central bank is “late to the party” – lagging behind in cutting interest rates.
The last nail was the indicators of the US labor market – unemployment increased more than analysts had predicted: unemployment has reached a level that already means a recession. According to the interviewer, this finally scared off investors – analysts realized that the US economy was not as strong as expected.
“There is an additional factor: anxiety among investors has led some of them to take profits and exit the market.” This is especially important in the segment of technology companies, where the share price of such companies in the US has reached historic highs, and markets have begun to question whether companies such as Nvidia are really worth that much.
The beginning of the collapse gave a start to the withdrawal of investors from such companies. This only accelerated the market collapse.
I don’t want to sound arrogant, but I think the investors were in a hurry. The market doesn’t always dig into the nuances: The unemployment rate in the US did jump, but that happened because of the hurricane, which put some workers on furlough, so they were technically unemployed.
However, the indicators of the number of people working full-time are very good”, A. Izgorodin shared his insights, who said that he saw no serious reason to panic.
When the United States has a fever, the whole world is sick
The fall in the Japanese stock market, which was recorded yesterday, August 5, is largely related to the fact that investors around the world began to worry about the US economy. It’s no secret: if the US economy gets sick, the whole world gets sick.
A recovery in Japan’s Nikkei index was boosted by last night’s US service sector confidence indicator. His data showed that the US economic situation is quite good.
“There are two narratives fighting in the markets now: one is that a recession is coming, the other is that everything is fine. In such a situation, investors are very tense, so every poor indicator becomes the end of the world”, A. Izgorodin explained the huge fluctuations.
However, according to him, it should be borne in mind that the base interest rate in the US is 5.5 percent. This is a very high level, which in turn means that the US central bank has a lot of leeway to cut interest rates if necessary.
And no matter who wins the presidential election, the US is in for another wave of spending growth and new stimulus. It is good for the economy.
“The biggest threat I see right now is a possible central bank panic. Now the US central bank is getting a lot of pressure from influential investors through the public space to cut interest rates suddenly and urgently.
If the bank gives in to this, we face two risks: another collapse of the stock markets – the markets will realize that the US central bank itself is scared, and second, if the central banks start cutting interest rates in a flash, we will face another wave of inflation in a year. Now we are in a critical period”, – the economist of “Citadele” bank assessed the situation.
The fear index has decreased
“Luminor Bank’s Chief Economist Žygymantas Mauricas said that the events of the stock market in recent days were determined by three reasons. The first is poor knowledge from the USA.
“Instead of the predicted 200 thousand in reality, we have almost halved the number of new jobs created, which has heightened fears that the US economy may face a slowdown or even a recession. With the understanding of economic indicators, expectations have increased that the US central bank will cut interest rates a little more aggressively than previously thought. Now it is expected that it will be reduced by one percentage point – twice as much as expected so far”, said Ž. Mauricas.
The changes in Japan also had an influence: the decision of the country’s central bank to increase interest rates and the strengthening of the yen forced the Japanese, who until then had been the most active investors in the US market in the world, to slow down.
“The third reason is related to the largest US IT companies – their share prices have grown extremely strongly in recent years, and their weight in the general US stock index has also increased, which has increased the risk. Meanwhile, their profitability fell to record lows,” said the CEO of Luminor Bank. an economist.
He added that the fear index has fallen significantly recently.
“The fear index is the price of insurance against a possible drop in stock prices. This price has fallen to practically all-time lows, which was around 2016-2019. Now it has jumped up again and the market has reacted to it,” the interviewer explained.
A lot of everything at once
Swedbank’s Chief Economist Nerijus Mačiulis singled out the increased share prices of IT companies.
“When we talk about changes in the financial markets, we always have to keep in mind that there is a stock price and its fundamental value. These two indicators may not coincide. In the short, sometimes medium term, the stock price breaks away from its fundamental value, economists call this phenomenon the formation of a bubble. We have quite a bubble in IT stocks in the US, and one of the main reasons for this is the euphoria about artificial intelligence. This is probably a deep reason”, said N. Mačiulis.
In addition to concerns about the state of the US economy and changes in Japan, he highlighted other possible side-effects.
“The tension between Israel and Iran increased over the weekend, as well as the thoughts heard from the world’s largest asset managers that now is not the best time to invest,” said a Swedbank bank representative.
There is nothing to worry about
Both interviewed economists emphasized that such shocks are not unusual, so the fluctuations of the last few days will not have major negative effects on the financial market.
“Optimists who don’t invest but follow fashions have already felt big losses, and there are certainly no lasting consequences for long-term investors. It will also have no impact on world economies, since we are talking about changes in the prices of financial assets, not crises. It is true that such fluctuations can still be expected,” said N. Mačiulis.
Ž. Mauricas had a similar opinion.
“I think this correction is healthy enough, I wouldn’t see anything dramatic.” If interest rates continue to decrease, some people may find it a good opportunity to buy shares, some sell, others buy,” said a representative of Luminor Bank.
He advised investors: you can’t make sudden moves in the stock markets, so changes should be introduced little by little.
True, Ž. Mauricas emphasized that such fluctuations may indicate that sustainable economic growth will have to wait.
“For a while, we will drive in certain pits. There is a high probability that many institutions will reduce their forecasts for the economy for next year”, said the interviewer.
“You have to show your nails”
At that time, economist Marius Dubnikovas unraveled the possible causes of the market shock. According to the expert, the version of the economic crisis here is unlikely.
“The two most likely real reasons are the excessive desire to earn foreign free money in the Japanese market by lending it and investing it in the riskier US market. Scissors have happened, with Japan raising interest rates and the US dollar tumbling, when leveraged debt is high, every wave counts. This is not about a systemic disease of the economy, but about the fact that too many brave people “shaved” a little, along the way also market participants who were looking for a quick profit.
Periodic and long-term investors will continue to gain and will now buy a little cheaper. On the other hand, the markets have to show their claws to keep us awake. The signal was very strong, but this may be the price for the peace that existed for a record long time – the VIX was not above 20 points all this year, so it was necessary to clean it up”, M. Dubnikova wrote on the Facebook account of the social network.
2024-08-06 22:41:26