Uncertainty over the US economy and the yen to blame for global stock markets' black Monday
The black Monday experienced by the Tokyo Stock Exchange has continued with a more positive Tuesday, in which the Nikkei index has rebounded by 10%
Monday, 5 August 2024, will go down in the diaries as one of the most negative in the history of the Nikkei index of the Tokyo Stock Exchange, which plunged 12.4 %, its biggest fall since the 1987 stock market crash.
The fall took 25 % off the peak reached by this index, which was 42,426 points on 11 July. The worst affected sector was banking, which lost 17%, although the biggest individual fall was that of Tokyo Electron, whose shares plummeted 18.48%.
However, the storm seems to have begun to dissipate: the dark day of 5 August has been followed by a session of recovery. The Japanese Nikkei rebounded by around 10 % at the close of trading on Tuesday, 6 August.
Fever on the international stock markets
Not surprisingly, the shockwave of the Nikkei's plunge was felt on the international markets: in Spain, the IBEX 35 was down 2.34% at the close of the session, while the Eurostoxx 50 fell by 1.45%.
In the United States, the Nasdaq fell by 2.34 % and the S&P 500 by 1.84 %. The impact on the share prices of the seven big technology companies (Nvidia, Alphabet, Microsoft, Apple, Meta, Amazon and Tesla), which have been rising sharply on the back of artificial intelligence since last year, was particularly significant.
The nervousness of investors who, faced with the news of the fall in international indices, have rushed to sell off the stocks with the greatest potential for fluctuation, has led to the falls.
At the opening of the European stock market session, the rebound of the Nikkei has allowed a return to calm and, in most cases, slight rises were being recorded.
Causes: the carry trade
To what do the experts attribute this surprise fall in share prices, dragged down by the Japanese stock market? On the one hand, the value of the yen. Last week's interest rate hike by the Bank of Japan allowed the Japanese currency to strengthen.
Precisely, the low interest rates that Japan had before the recent rise allowed the yen to be one of the preferred currencies for the so-called "carry trade", which consists of borrowing in one currency (the yen itself), taking advantage of its low financing cost, and investing in assets in another currency, such as buying Nasdaq shares in dollars.
Business was good, as the dollar was being exchanged at 160 yen, the biggest difference since 1990. The rate hike allowed the Japanese currency to appreciate and exchange at 142 to the dollar, forcing many traders to unwind ongoing carry trades. Hence the fall.
Doubts about the US economy
Doubts about US economic growth also contributed to the stock market decline, following the weak employment data released on 2 August: just 114,000 jobs, compared to the 175,000 expected by analysts, and an increase in the unemployment rate by two tenths of a percentage point to 4.3%.
This aroused investors' fears of a recession, in an environment of high interest rates (between 5.25 and 5.5 %), at least until September, as recently confirmed by the chairman of the US Federal Reserve, Jerome Powell.
In fact, the black Monday experienced by the stock markets has increased speculation about an imminent cut in US interest rates, which could even begin next week, with an emergency meeting.
In any case, we will have to wait for the traditional meeting of the world's central bankers, which is held every year at the Jackson Hole resort in the mountains of Wyoming (United States), and which this year will take place between 22 and 24 August, to get a glimpse of where US monetary policy is going to go.
The stability of world markets will depend to a large extent on this, as they are also very much dependent on geopolitical variables, especially the development of events in the Middle East.