Stock Slump Deepens as Japan Falls Most Since 2016: Markets Wrap

(Bloomberg) — A global stock selloff intensified as concerns grew over the health of the US economy and tech firms. Japanese shares plunged on expectations for more domestic monetary tightening, further darkening the mood.

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The Euro Stoxx 50 futures slid 0.9%, while US contracts also dropped. In Asia, the Topix index sank 6.1%, marking its worst day since 2016 as the yen traded near its strongest since March to weigh on Japan’s export-oriented economy. Shares from South Korea to Hong Kong also dropped, with AI chipmaker SK Hynix Inc. tumbling as much as 10.6%.

Meantime, Treasuries extended a rally, with the policy-sensitive two-year yields touching a 14-month low amid increased bets on rate cuts by the Federal Reserve following the central bank’s decision Wednesday. Swaps traders raised the number of reductions this year to three from two.

The broader risk-off tone came after data showed US weekly unemployment claims hit an almost one-year high while manufacturing shrank. The tech-led losses were inflicted by disappointing earnings outlook or results from industry behemoths such as Intel Corp. and Amazon.com Inc. The focus will now shift to the monthly jobs data later Friday.

What’s keeping investors on edge in Japan is the outlook for the nation’s central bank to hike rates further following its move earlier this week. The Bank of Japan’s big policy shift this week makes another interest rate hike highly likely in October and raises the potential for quarterly increases, according to a former executive director in charge of monetary policy.

“The recent strengthening of the Japanese yen coupled with tech sector weakness is poised to significantly impact the Asian stock market,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore. “Japanese exporters are particularly vulnerable to the yen’s appreciation, as it erodes the value of their overseas earnings.”

The MSCI Asia Pacific Index declined as much as 3.6%, the most in over three years, with tech and industrial companies among the top losers.

Weighing on the tech sector, Intel said third-quarter revenue will disappoint while Amazon.com projected profits that missed analysts’ estimates, sending each company’s shares lower in after-hours trading.

Treasuries advanced again on Friday, with the 10-year yield extending its decline below 4%, partly reflecting stronger demand for safe-haven assets. The two-year note saw its yields fall two basis points, adding to the 11 basis-point drop the day before.

The yen extended its rally into the fourth day, pushing the currency to around 149 per dollar. The pound slid Thursday after the Bank of England cut rates and signaled further cautious reductions ahead. A Bloomberg dollar gauge was steady.

Aside from the yen’s recent surge, renewed worries about the health of the world’s No. 1 economy also weighed on Japanese shares.

“I didn’t expect stocks to fall this much,” said said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management Co. in Tokyo. “This is probably because there are concerns that the U.S. economy will collapse in a big way, which is the most unpleasant pattern for Japanese stocks.”

US Jobs

Economists are expecting a moderation in job growth in the government’s July employment report due Friday. Forecasters anticipate the unemployment rate remained steady at 4.1%.

“The ‘hard landing’ genie has one foot out of the bottle, soon to be two if tonight’s non-farm payrolls disappoints,” said Tony Sycamore, analyst at IG Australia. If the unemployment rate edges toward 4.3% with job additions slowing to less than 100,000, “then all bets are off,” he said.

Elsewhere in Asia, a Chinese central bank policy adviser issued a rare critique of Beijing’s economic policies for being overly conservative, urging the government to ramp up fiscal stimulus and promote inflation. The country’s benchmark CSI 300 stock index extended losses from Thursday following a brief rally in the previous session.

In corporate world, Apple Inc. is ramping up pressure on Tencent Holdings Ltd. and ByteDance Ltd. to make fundamental changes to China’s most popular apps, an unusual move that may inflame tensions in the world’s largest smartphone market.

In commodities, oil rose after a Thursday decline against the backdrop of concerns Middle East tensions may impact supply. Gold climbed.

Key events this week:

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.7% as of 2:10 p.m. Tokyo time

• Nasdaq 100 futures fell 1.3%

• Japan’s Topix fell 5.1%

• Australia’s S&P/ASX 200 fell 2.1%

• Hong Kong’s Hang Seng fell 2.1%

• The Shanghai Composite fell 0.5%

• Euro Stoxx 50 futures fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0799

• The Japanese yen rose 0.1% to 149.14 per dollar

• The offshore yuan rose 0.5% to 7.2159 per dollar

Cryptocurrencies

• Bitcoin fell 0.6% to $64,307.52

• Ether fell 0.3% to $3,157.73

Bonds

Commodities

• West Texas Intermediate crude rose 0.7% to $76.85 a barrel

• Spot gold rose 0.5% to $2,459.29 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi and Yasutaka Tamura.

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