Following a significant decline driven by concerns of a US recession prompting calls for an interest rate cut by the Federal Reserve, most equities saw a rebound on Tuesday.
Tokyo, which experienced a record loss on Monday, led the gains by surging over 10%. Traders rushed to purchase undervalued stocks after a catastrophic market day.
The Nikkei index in Tokyo, which plummeted over 12% the previous day, witnessed a 10.2% jump. Major companies like Toyota, Sony, and Tokyo Electron saw substantial increases in their stock prices.
Other markets like Shanghai, Sydney, Seoul, Taipei, Mumbai, Bangkok, and Manila also recorded gains, while Hong Kong initially saw growth but later slipped into negative territory.
Singapore and Wellington, however, experienced more selling pressure.
London saw a slight increase after a 2% decline the previous day, with Paris and Frankfurt also trending upwards.
Analysts caution that more volatility is likely in the near future.
The market sell-off was triggered by Friday’s data indicating lower job creation numbers in the US than anticipated, along with ongoing weaknesses in the manufacturing sector.
These factors sparked concerns that the Federal Reserve had maintained interest rates at high levels for too long, posing a risk of a recession.
Some experts pointed to the “Sahm Rule,” suggesting that a recession might be on the horizon if the unemployment rate average increases by 0.5 percentage points over the previous year’s low. This threshold was surpassed by the recent jobs data.
Market observers highlighted a strengthening yen prompting investors to unwind their high-yield investments funded by borrowing in the low-interest Japanese currency.
Although Wall Street indices experienced another day of losses, a positive report on the US services sector provided some relief.
Japan’s Prime Minister, Fumio Kishida, stressed the importance of assessing the market situation calmly during a news conference on Tuesday.
The conversation around a potential Federal Reserve rate cut intensified following Friday’s data release. Nobel laureate economist Paul Krugman advocated for an emergency rate reduction given the prevailing market conditions.
Notwithstanding, Chicago Fed chief Austan Goolsbee urged caution against overreacting to a single jobs report, emphasizing the need for a forward-looking approach to assessing the economy’s trajectory.
Market analysis firm Pantheon Macroeconomics indicated that the Federal Reserve might not heavily consider the stock market downturn as the major indices were still higher compared to the beginning of the year.
Fed Chair Jerome Powell hinted at a possible rate cut following the recent policy meeting, with speculations now circulating about a substantial reduction in interest rates.
The yen’s recent rally against the dollar tapered slightly, hovering just below 145 per dollar after hitting a six-month high below 142 on Monday.
Moody’s Analytics analysts highlighted concerns about the implications of the recent equity sell-off in Asia on the Bank of Japan’s policy decisions, given the central bank’s cautious approach in light of past market downturns.
Key market figures around 0710 GMT showed diverse movements across major indices and currencies.