(Reuters) -Global stocks rallied on Tuesday, partly reversing some of the previous day’s steep declines, while the Japanese yen took a breather, after central bank officials said all the right things to soothe investor nerves.
Japan’s Nikkei soared more than 10% after plunging 12% on Monday in its biggest one-day percentage drop since October 1987.
In Europe, the STOXX 600 rose 0.5%, recouping some of Monday’s 2.2% decline thanks to a pickup in banking stocks and travel and leisure shares.
Currency markets remained on edge, with the yen down nearly 1% after rising for five straight sessions to a seven-month high on Monday.
QUOTES
CHRIS BEAUCHAMP, CHIEF MARKET STRATEGIST, IG, LONDON
“If you wake up in the morning to discover that Japan is down 10-12%, it’s going to scare the daylights out of the sanest person in the world, so it’s understandable that people take flight.”
“If you look at the tech stocks, at the Nasdaq 100, or even the Nasdaq Composite, that was down 17% (from the record high) at one point. It’s had a big correction from the July high, so a lot of froth has come out of it already. You can’t tell if it’s going to be the low, or we’re back here in two months’ time.”
“It’s normal to see weakness this time of year. The question is – was that enough to reset markets or is there going to be more?”
MOHIT KUMAR, CHIEF ECONOMIST FOR EUROPE, JEFFERIES, LONDON
“Some normalcy has started to return to the markets. We do not think the Fed will cut inter meeting, or will deliver a 50 bps cut in September. We do not think that the U.S. economy (or Europe) is headed for a hard landing.
“The aggressive market reaction over the last few sessions was due to a combination of heavy positioning, unwind of carry trades, summer illiquidity and geopolitical concerns which amplified the shift in market perception of the U.S. economy.”
MARK DOWDING, CIO, RBC BLUEBAY ASSET MANAGEMENT, LONDON
“With the moves in equities driven by rates and recession fears, we think markets should stabilise. Japanese equities should bounce strongly here and JGB yields have rallied too much. We also think the rally in the yen is likely to stop for now.”
SEO SANG-YOUNG, ANALYST, MIRAE ASSET SECURITIES, SEOUL
“The market was in extreme shock initially, although an economic recession has not even started. There will be some recovery in the near term, but volatility will continue to grow because the economy is slowing after all.
“There is not much downside left for the market after yesterday’s sharp drops, but at the same time, there are not many upward factors seen either. The market will likely start to price in recession as we move on to the fourth quarter and go through correction. Economic data is becoming more important than ever.”
JOHN MILROY, PRIVATE WEALTH ADVISOR, ORD MINNETT, SYDNEY
“It has been a long while since we have seen these outsized moves. I’m not sure if the bounce is sustainable, but these moves are reflective of a market that is trading expensively. There is still a sizable amount of cash sitting on the sidelines so I wouldn’t expect further big falls to last too long, but I note that the VIX has been edging higher over the last month.”
WONG KOK HOI, FOUNDER AND CO-CIO, APS ASSET MANAGEMENT, SINGAPORE
“The sell-off was scary especially of certain stocks like Intel, Nvidia, etc and therefore the euphoria which had driven up markets like the U.S. and Japan would likely take a pause. Sanity and rationality should return somewhat. What is less certain is the extent of the leveraged carry trades and quant strategies and the losses suffered. Inevitably, some would get hurt badly yesterday and may not even survive this vicious rout.”
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
“The size of sell-offs seen thus far is too much and fears of recession in the U.S. economy have eased. Market sentiment will improve with some higher caution on the global economy and the geopolitical risks than before.
“And the U.S. economic data which will be available in quarters ahead will likely suggest the economy will continue slowing, which may bring a view that the economy will someday be going to enter recession. In a word, optimistic cautiousness will be always there in markets.”
VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE
“At this juncture, it is too early to call the market bottom given multiple moving parts and the momentum of selling. However, the key question to ask would be whether the economic and earnings outlook has changed materially and for now, it’s too early to jump the gun. We will have to monitor economic data in the coming weeks to see if recession fears are indeed warranted.
“With stock markets plunging around the world, traders are talking up the prospect of an emergency interest-rate cut from the Fed after it passed up the opportunity to ease policy last week. This seems unlikely. The market sell-off is due to an unwinding of yen carry trades and AI concerns and not because the U.S. economy is broken and in dire straits. So, there is no reason for the Fed to step in and mitigate losses for equity investors.”
CHARU CHANANA, HEAD OF CURRENCY STRATEGY, SAXO, SINGAPORE
“There seems to be some calm in the markets, probably because the selloff was too fast. Perhaps markets could reassess its calls for an intermeeting rate cut from the Fed without anything having broken really.
“However, recession concerns will likely remain easy to trigger as the U.S. growth slowdown broadens, and the market will likely remain fragile as it continues to look for some sort of a response from the Fed.”
RAY SHARMA-ONG, HEAD OF MULTI-ASSET INVESTMENT SOLUTIONS FOR SOUTHEAST ASIA, ABRDN, SINGAPORE
“Fundamentally, nothing significant has changed for the Japanese economy. It is the unwinding of the carry trade driving a lot of the momentum sells.
“The Japanese market tends to overshoot on the downside during periods of aggressive selling. Over the past 10 years, there were three corrections where the TOPIX sold off more than -10% (May 2013, Jan 2014, Sep 2014), with the market recovering shortly after each.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“The Nikkei’s enjoying a decent retracement against Monday’s plunge, as comments from the Fed’s (Mary) Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week. But this is not exactly a risk-on rally. And we’re not yet sure if this is just a breather between water-boardings or there is more pain to follow.
“But with the VIX futures curve in backwardation, I suspect price action to remain choppy and fickle until the dust truly settles. And with so many burned fingers to contend with, it is hard to see a risk-on rally materialising any time soon. Right now, a pause will do.”
RON SHAMGAR, HEAD OF AUSTRALIAN EQUITIES, TAMIM ASSET MANAGEMENT, SYDNEY
“My view is that this market turmoil is mostly driven by the yen carry trade being partly unwound. That’s happened on the same day where U.S. jobs numbers came in slightly weaker than expected and a potential imminent attack by Iran on Israel.
“Combine those factors with a market that so far hasn’t seen the usual and bi-annual pullback or correction of 5-10% this calendar year – and you had a so-called rug pull. We think volatility will persist over the next few weeks and stock prices direction will be dictated by the upcoming results season in Australia and the U.S. during late August.”
GARY NG, SENIOR ECONOMIST FOR NATIXIS, HONG KONG
“It is hard to say the worst is behind us … pressure might linger a little bit.”
“There are many moving parts, with three key concerns come from the outlook of the U.S. economy, the unwinding of investors’ trades in Japan and geopolitical risks in the Middle East … particularly the last one, which has not been fully realised for now. As for the U.S. recession outlook, we see some sectors in the economy like consumption still holding up, and datasets in the coming weeks might come out not as bad as the surface looks, and it may help stabilise things.”
(Compiled by the Global Finance & Markets Breaking News team)