Nikkei 225 Plunges 8% on US Economy Fears

Bangkok, Aug 5 (AP) Japan's benchmark Nikkei 225 stock index plunged as much as 8.1 per cent early Monday, extending sell-offs that shook world markets last week as worries flared over the state of the US economy.

At one point, the Nikkei shed more than 2,900 points, to 32,991.88. The market's broader TOPIX index also fell 8 per cent as selling picked up in the afternoon.

A report showing hiring by US employers slowed last month by much more than expected has convulsed financial markets, vanquishing the euphoria that had taken the Nikkei to all-times highs of over 42,000 in recent weeks.

The Nikkei 225 dropped 5.8 per cent on Friday and it is headed for its worst two-day decline ever. Its worst single-day rout was a plunge of 3,836 points, or 14.9 per cent, on a day dubbed “Black Monday” in October 1987. Share prices have fallen in Tokyo since the Bank of Japan raised its benchmark interest rate on Wednesday. The Nikkei is now at about the level it was a year ago.

One factor driving the BOJ to raise rates was prolonged weakness in the Japanese yen, which has pushed inflation to above the central bank's 2 per cent inflation target. Early Monday, the dollar was trading at 143.07 yen, down from 146.45 late Friday and sharply below its level of over 160 yen a few weeks ago.

The euro rose to USD 1.0934 from USD 1.0923.

Shares had surged to stratospheric heights earlier this year on frenzied buying of shares in companies expected to thrive thanks to advances in artificial intelligence. The latest setback has hit markets heavily weighted toward computer chipmakers like Samsung Electronics and other technology shares: on Monday, South Korea's Kospi plummeted 6.5 per cent as Samsung's shares sank 7.7 per cent.

Taiwan's Taiex crumbled, losing 7.4 per cent as Taiwan Semiconductor Manufacturing Co., the world's biggest chip maker, dropped 8 per cent.

Stocks tumbled Friday after weaker than expected employment data fanned worries the US economy could be cracking under the weight of high interest rates meant to tame inflation. Early Monday, the future for the S&P 500 was 1.5 per cent lower and that for the Dow Jones Industrial Average was down 0.7 per cent.

“To put it mildly, the spike in volatility-of-volatility is a spectacle that underlines just how jittery markets have become,” Stephen Innes of SPI Asset Management said in a commentary. “The real question now looms: Can the typical market reflex to sell volatility or buy the market dip prevail over the deep-seated anxiety brought on by this sudden and sharp recession scare?”

The VIX, an index that measures how worried investors are about upcoming drops for the S&P 500, fell about 26 per cent as of early Monday. Bitcoin which recently had surged to nearly USD 70,000, was down 14 per cent at USD 54,155.00.

Oil prices were little changed. US benchmark crude oil gained 9 cents to USD 73.61 per barrel while Brent crude was flat at USD 76.81 per barrel.

Investors will be watching for data on the US services sector from the US Institute for Supply Management due later Monday that may help determine if the sell-offs around the world are an overreaction, Yeap Jun Rong of IG said in a report.

Worries over weakness in the US economy and volatile markets have rippled around the world, even though the US economy is still growing, and a recession is far from a certainty.

Elsewhere in Asia, Hong Kong's Hang Seng index lost 0.2 per cent to 16,908.96 and the S&P/ASX 200 in Australia declined 12.8 per cent to 7,722.60.

The Shanghai Composite index, which is somewhat insulated by capital controls from other world markets, edged 0.1% higher.

The S&P 500's 1.8 per cent decline Friday was its first back-to-back loss of at least 1 per cent since April. The Dow Jones Industrial Average dropped 1.5 per cent, and the Nasdaq composite fell 2.4 per cent.

Friday's losses dragged the Nasdaq composite 10 per cent below its record set last month. That level of drop is what traders call a “correction.”

The rout began just a couple days after US stock indexes had jumped to their best day in months after Federal Reserve Chair Jerome Powell gave the clearest indication yet that inflation has slowed enough for cuts to rates to begin in September.

Now, worries are rising the Fed may have kept its main interest rate at a two-decade high for too long, raising risks of a recession in the world's largest economy. A rate cut would make it easier for US households and companies to borrow money and boost the economy, but it could take months to a year for the full effects to filter through.

“Specifically, the scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here,” Tan Boon Heng of Mizuho Bank in Singapore said in a report. (AP)