Fears of a strengthening yen and potential US recession sent Japanese stock markets into meltdown, seeing the biggest point decline in a single day in history. From Monday’s finish of 31,458, the Nikkei 225 Index rose significantly, rising more than 8% to cross 34,000 in the first few minutes of trade. Its most significant one-day decline since the Black Monday disaster of 1987 occurred with a stunning 12.4% decline. There were indications of stability on Wall Street, too. In the early going, Nasdaq futures saw a 1.2% increase, while S&P 500 futures saw a 0.9% increase. With the Nasdaq Composite falling 3.43%, the S&P 500 had lost 3.00% on Monday.
On the contrary, there were indications of a retreat from Monday’s volatile movements in the currency markets. The dollar rose somewhat to 145.64 yen after plunging as low as 141.675, down 1.5%. As investors unwound carry trades—in which they borrowed yen at cheap interest rates to invest in assets with greater yields—the yen’s value has lately increased.
At a low of 0.8430, the dollar lost ground against the Swiss franc, but it also recovered somewhat, holding at 0.8546 francs. Treasury yields increased as well after falling during the selloff. The yield on 10-year Treasury notes first fell as low as 3.667% but later rose to 3.84%. The promising U.S. ISM services index data for July, which increased to 51.4, had some bearing on this recovery. Of particular note is the employment index in this report jumped five points to 51.1, suggesting that the previous week’s payroll report overstated labor market weakness.
Officials from the Federal Reserve intervened to calm the markets. The Federal Reserve Bank of San Francisco President, Mary Daly, underlined how crucial it is to stop the labour market from getting worse. Daly emphasised the necessity for aggressive policy actions and said she would lower interest rates if required. With futures indicating an 87% chance of a rate drop of 50 basis points at the Fed’s September meeting, his remarks confirmed market expectations of a move in that direction. About 115 basis points of easing have been priced in by the market for this year, and a similar amount is expected for 2025.
Other markets did not see a bid for gold as a safe haven, and after losing 1.52% overnight, current prices were $2,409 per ounce. Within the energy sector, oil prices bounced early Tuesday following news of an attack on a U.S. military base in Iraq, which injured several personnel and raised fears of a broader conflict.
