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Source: Global Times

[Global Times Comprehensive Report] "Concerns about the slowdown in US economic growth have shaken global markets." The New York Times said on the 5th that the stock market crash that started in Asia on the same day spread to Europe. Agence France-Presse called Japan the "leader of the decline" on the 5th - the Nikkei 225 stock average price index closed down 4,451 points, setting a record for the number of points lost. Some Japanese analysts described the situation on the 5th as if someone in a full theater shouted "fire" and "all market participants are trying to withdraw funds from the market together." Japanese media said that in addition to the panic caused by the slowdown in the US economy, the appreciation of the yen also put heavy pressure on the stock market. Other major Asian stock indexes were "implicated" - the plunge in South Korea's two major stock indexes triggered the circuit breaker mechanism, and stock indexes in India, Singapore, Indonesia and other countries also fell one after another. The uneasy mood also spread to Europe and the United States. According to Agence France-Presse, local time on the 5th, the three major US stock indexes all opened lower, with the Dow Jones Industrial Average down 2.73%, the S&P 500 down 4.1%, and the Nasdaq down 6.36%. "Black Monday." The German "Wall Street Online" website described the situation in the global stock market on the 5th. However, some analysts believe that the market has "overreacted" to the data recently released by the United States and investors should calm down.

Traders work in the hall of the New York Stock Exchange on the 5th local time. (Visual China)

"Nikkei fell 4,451 points, the biggest drop in the Japanese stock market"

The New York Times said on the 5th that major global stock markets plummeted as investors panicked about signs of slowing U.S. economic growth. This trend was a "sharp reversal" - for most of the past year, optimism about cooling inflation, a solid labor market and the prospects for artificial intelligence technology had driven stock markets in major global markets to rise.

The Nihon Keizai Shimbun described the Japanese stock market as a "summer storm that suddenly hit". Fuji News Network of Japan described that on the 5th, market participants and investors were in chaos. At securities companies in Tokyo, calls from investors kept ringing, and the staff were overwhelmed to respond. They said that many clients had sold their stocks.

"Nikkei fell 4,451 points, the biggest drop in the Japanese stock market." According to Kyodo News and the Nikkei Shimbun on the 5th, the Nikkei 225 stock average price index fell 12.4% that day to close at 31,458 points, a drop of more than 3,836 points the day after the "Black Monday" crash in the U.S. stock market in 1987, setting a new record. The Nikkei stock index fell below the closing price at the end of 2023 (33,464 points), wiping out all gains in 2024. The Tokyo Stock Exchange's stock price index also fell 12.23% to close at 2,227 points. From the perspective of sectors, 33 industry sectors on the Tokyo Stock Exchange fell across the board, with most sectors falling by more than 10%.

According to the Nihon Keizai Shimbun, affected by the stock market crash, the Osaka Stock Exchange triggered the circuit breaker mechanism to suspend Topix futures trading on the morning of the 5th, in order to encourage investors to make calm judgments when the market fluctuates violently. This is the first time that the circuit breaker mechanism has been triggered in Topix futures trading since the Great East Japan Earthquake in March 2011. In the afternoon of the 5th, the Nikkei stock index futures also triggered the circuit breaker mechanism.

Nomura Research Institute's chief economist Nobuhide Kiuchi said that the Bank of Japan's "abnormal" loose monetary policy has led to the bursting of the "bubble of yen depreciation and stock market boom" against the backdrop of rising global prices. The Nihon Keizai Shimbun said that there is a view that the Japanese stock market still has room to fall and "market chaos continues."

Kyodo News reported that investors' vigilance against the slowdown of the US economy has intensified, and the appreciation of the yen in the Tokyo foreign exchange market has also put heavy pressure on the stock market. On the 5th, the yen-dollar exchange rate once broke through 143 and entered the 142 range, and the yen appreciated to a seven-month high. The Nihon Keizai Shimbun said that overseas investors, who are the main buyers of Japanese stocks, are selling. They bought heavily in the early days of "Abenomics" due to the Bank of Japan's loose financial policy. Now the Bank of Japan's interest rate hike has become an important turning point. This week, overseas investors began to stop the trading mode of "selling yen and buying Japanese stocks."

According to a report on the U.S. CNBC website on the 5th, Zheng Wangqing, regional chief investment officer of UBS Global Wealth Management, said that entering the Japanese market now is like catching "a falling knife". The only reason why the Japanese stock market has risen so strongly in the past two years is that the yen is "very, very weak. Once the situation reverses, you must withdraw."

The New York Times said that due to the weak employment data, Goldman Sachs believes that the Federal Reserve will cut interest rates in the next three meetings, which is a "more aggressive schedule" than the agency had previously expected. In this case, if the Bank of Japan continues to raise interest rates, the trend of yen appreciation will be strengthened. The Wall Street Journal said that this will damage the foreign exchange gains of Japanese companies' exports and overseas assets, and will be reflected in their financial statements.

"New York sneezed and Japan caught pneumonia"

"The market's reaction illustrates the deterioration of the U.S. economic outlook." The New York Times quoted financial analyst Cole as saying that this was "New York sneezed and Japan contracted pneumonia." Several Japanese media mentioned that data released by the U.S. Bureau of Labor Statistics last week showed that the number of non-farm payrolls in the United States increased by 114,000 in July, far lower than the previous value of 179,000; the unemployment rate in July increased by 0.2 percentage points month-on-month to 4.3%, the highest since October 2021. On the 2nd, all three major U.S. stock indexes fell.

In addition to concerns about the US economic growth prospects, Li Xunlei, chief economist of Zhongtai International, told the Global Times on the 5th that before this round of continuous decline, the Japanese stock market had been rising for more than a year, and its valuation level was high, and the market needed to adjust. Especially when the fundamentals of the Japanese economy are not fully supported, the Bank of Japan's unexpected interest rate hike has fueled market panic, and combined with external market factors, it has contributed to the record decline of the Japanese stock market on the 5th. He said that during the previous stage of continuous rise in the Japanese stock market, overseas funds poured in, and this round of decline is also directly related to these funds taking profits and leaving the market. "One of the characteristics of international hot money is to boost prices and declines."

In addition to Japan, other major Asian stock markets were also shrouded in gloom on the 5th. "The sharp drop in South Korea's two major stock indexes both triggered the circuit breaker mechanism." Yonhap News Agency said that at 14:14:30 on the 5th, the Korea Composite Stock Price Index triggered the circuit breaker mechanism, plummeting 8.1% from the previous trading day to 2676.19 points. In the afternoon of the same day, the Korea Venture Index plummeted more than 8% during the intraday session and also suspended trading for 20 minutes. Yonhap News Agency believes that the liquidity environment has deteriorated sharply, such as the spread of concerns about the stagnation of the US economy and the official start of the settlement of yen carry transactions due to the appreciation of the yen, resulting in a sharp outflow of foreign funds from the Korean stock market. The Korea Economic Daily said that concerns about the possibility of the Korean economy falling into a "stagnation quagmire" are deepening.

According to foreign media reports, India's Nifty50 index fell 2.7% on the 5th, Australia's S&P/ASX 200 index fell 3.7%, Singapore's Straits Times Index fell 4%, and Malaysia's KLCI index fell more than 4.6%.

Regarding the decline or even plunge of other major stock indices in Asia, such as South Korea, on the 5th, Li Xunlei believes that this is a chain reaction caused by the "drag" of the Japanese stock market, and the Chinese stock market has also been implicated. The A-share and Hong Kong stock markets, which had once performed strongly in the morning of the 5th, fell in the afternoon. By the close of trading, the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index all fell by more than 1%.

The New York Times said that the anxiety in Asia has spread to Europe. On the 5th, the Euro Stoxx 50 Index, the German DAX Index, and the British FTSE 100 Index all fell by 1% to 2%.

On the 5th local time, the three major U.S. stock indexes all opened lower. Among them, technology stocks continued to fall. Nvidia fell more than 14%, Tesla fell more than 10%, and Apple fell nearly 10%. According to AFP and The New York Times, Asian technology companies were also hit particularly hard on the 5th. The share prices of Samsung Electronics and SK Hynix in South Korea fell by more than 11%. The New York Times said that the share prices of European semiconductor companies such as ASML in the Netherlands were also falling. The largest cryptocurrency Bitcoin plummeted by more than 10%, which once again showed investors' anxiety.

"Market overreacts"?

"Financial markets are filled with fear." German News Television said on the 5th that at the beginning of the new trading week, concerns about a possible hard landing of the US economy have caused panic among investors. Dutch ING Group Asia expert Carnell said that the market is currently capturing any signs of weakness, "it specifically looks for bad news." Other analysts said that the specter of recession has returned to the trading floor.

Ma Wei, assistant researcher at the Institute of American Studies of the Chinese Academy of Social Sciences, told the Global Times that the market had previously been overly optimistic about the US economy. After the release of US non-farm payrolls data last week, the optimistic sentiment changed rapidly, covering up many relatively rational voices, leading to excessive pessimism in the market, thus forming a series of downward reactions in the capital market.

Germany's Handelsblatt published an article on the 5th saying that the stock market is at a critical stage. The degree of investor nervousness can be seen from the Chicago Board Options Exchange Volatility Index (VIX), which is known as Wall Street's most important "barometer of fear". Last Friday, the VIX soared to 26%. There are four main risks that cause investor panic, including concerns about a US recession, a bubble in the artificial intelligence industry, a severe global economic situation, and the danger of escalating tensions in the Middle East.

Bloomberg reported on the 5th that in a latest report, Goldman Sachs economists raised the probability of the United States falling into a recession within 12 months from the previous 15% to 25%, but they still believe that this risk is "limited", the US economy as a whole still looks "good", and the Federal Reserve has a lot of room to cut interest rates. The Wall Street Journal also said on the 5th that analysts and traders are still trying to assess a series of recent US data and their impact on the market. Some people believe that the panic selling caused by these data may be a bit excessive, and investors should not lose their minds.

Regarding the stock market crash, Japanese Finance Minister Shunichi Suzuki said on the 5th that it is important for the government to make calm judgments. According to the website of the Japan Broadcasting Association (NHK) on the 5th, Itochu Corporation CFO Tsuyoshi Hachimura described Japan as "as if it had encountered a sudden rainstorm." But in his opinion, it may be too early to judge that this is the turning point for the deterioration of the Japanese stock market. "We must first carefully look at the current impact on consumption and the demand for investment by companies."

[Global Times reporter Ni Hao, Global Times special correspondents in Japan, Germany and Singapore Pan Xiaoduo, Aoki Xinbin and Liu Xinyan]