Nikkei Dives into Bear Territory

Asian stock prices sharply fell this morning, with the Japanese Nikkei index diving into ‘bear territory’ as investors fear that employment data in the U.S. will be weaker than analysts expect.

On the Tokyo Stock Exchange, the Nikkei index was down 1.3 percent at 7:30 AM, while stock prices in Singapore, Australia, Shanghai, Hong Kong, and South Korea fell between 0.2 and 1.3 percent.

The MSCI Asia-Pacific index, excluding Japan, was down 0.6 percent at 7:30 AM, plunging to its lowest level since November last year. The Tokyo Nikkei index has sunk into ‘bear territory’ this morning, having lost more than 20 percent since it reached its highest level in the last five and a half years two weeks ago.

Since the end of last year, when new Japanese Prime Minister Shinzo Abe announced aggressive monetary and fiscal measures to stimulate the economy and curb deflation, stock prices had been rising strongly until recently. However, in recent weeks, the euphoria has faded, prompting investors to opt for profit-taking.

This is especially true given the uncertainty over whether the U.S. Federal Reserve will continue to pursue a loose monetary policy, which has long supported the capital markets. This, among other factors, depends on the employment data in the U.S., which will be released this afternoon. In a Reuters survey, analysts estimate that the number of employed increased by 170,000 in May, slightly more than in April. Meanwhile, the unemployment rate could remain unchanged at 7.5 percent.

In anticipation of this data, which could significantly steer the markets, investors are ‘on edge,’ and stock prices have also fallen on other Asian exchanges this morning.

Investors were not reassured by yesterday’s rise in stock prices on Wall Street of about half a percent, as trading was very uncertain, with indices oscillating throughout the day between negative and positive territory.

Nervousness ahead of the employment report and a series of data indicating weak growth in the U.S. economy caused a sharp decline in the dollar’s exchange rate in the currency markets. Yesterday afternoon, it plummeted more than 3 percent to just 95.90 yen, while this morning it partially recovered losses, reaching 96.70 yen. The dollar also weakened against the European currency, with the euro’s exchange rate this morning around 1.3252 dollars, compared to 1.3090 dollars at the same time yesterday.

The strengthening of the euro is attributed to yesterday’s decision by the European Central Bank to keep key interest rates unchanged for the time being. As a result, last night, for the first time in three and a half months, the euro price broke above the level of 1.33 dollars. However, against the Japanese currency, the euro’s exchange rate slipped from yesterday’s 130.05 to 128.15 yen.

After rising by 1 dollar yesterday, this morning the futures price of oil on the New York exchange strengthened by another 10 cents to 94.85 dollars per barrel.