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Global stocks extended a sell-off on Friday after lacklustre data fed fears over the resilience of the US economy and earnings from the all-important tech sector underwhelmed.
The Stoxx Europe 600 dropped 1.6 per cent at the start of European trading, with semiconductor manufacturers including ASML fell 8 per cent after US chipmaker Intel revealed plans to axe 15,000 jobs.
A bruising open in Europe came after Japanese stocks had led declines across Asia, with the broad Topix benchmark, which hit a record high last month, closing down 6 per cent in its biggest one-day fall since 2016.
The declines extended to South Korea, where the Kospi index fell by almost 4 per cent. Australia’s S&P/ASX 300 closed down 2 per cent, and shares of leading chipmaker TSMC dropped nearly 6 per cent in Taipei.
The weakness across global equities came after US manufacturing data on Thursday suggested a slowdown in the country’s labour market. Signs that the jobs market is losing momentum will sharpen investors’ focus on the monthly US jobs report later on Friday.
“We haven’t really seen these moves since Covid. Why are they so extreme? Because bad data in the US is now being treated as bad data,” said Takeo Kamai, head of execution services at CLSA in Tokyo. He added that weak economic data was now fuelling recession fears, whereas previously investors took negative US data as a sign that interest rates might come down and boost equities.
“Geopolitics and earnings are playing into this,” said Kamai. “Uncertainty is very high, and people are de-risking.”
The blue-chip S&P 500 declined by more than 1 per cent on Thurday, while the tech-heavy Nasdaq 100 fell more than 2 per cent.
The sell-off in Japan has been accelerated by heavily leveraged Japanese retail investors rushing to get out of a popular exchange traded fund, the Nomura NF Nikkei 225 ETF, traders said. The ETF closed 11.46 per cent lower on Friday as individual investors rushed to stem losses.
A 20 per cent plunge in Intel shares after US markets closed spooked Tokyo, where tech and semiconductor names have been among the most attractive to foreign investors.
Bellwether Japanese technology groups, led by Tokyo Electron, SoftBank, Lasertec and Advantest all fell heavily in a rout that traders at two Japanese houses said appeared to have been led by large overnight sell orders from European and US long-only funds.
“It’s been a profit-taking frenzy this week. The big funds are taking risk off the table, and Japan is being hardest hit after a very strong run and now a macro backdrop that looks less bright,” said one senior broker at a Japanese securities house. “How long will this go on? We are not seeing signs of strong support here.”
The selling targeted many sectors but hit financials and industrials especially hard. Mitsubishi Heavy Industries, the defence contractor whose shares had surged to an all-time high this year and which had been a favourite of foreign investors, has fallen more than 15 per cent this week.
Part of the damage has been the stronger yen, which has cast a chill over Japanese exporters, traders said.
The Bank of Japan’s unexpected interest rate increase on Wednesday and the implication that it had entered a rate-raising cycle, even as the US Federal Reserve appears poised to cut rates, has propelled the yen far higher than many had expected.
At Friday’s level of ¥149.06 against the dollar, the yen is now 7 per cent higher than it was in mid-July, and at a level that currency traders said was continuing to deter speculators from the huge bets against the yen that had been built up throughout 2024.
“We don’t think that the Japan story is broken at this point, but the rules of the game have definitely changed,” said Bruce Kirk, chief Japan equity strategist at Goldman Sachs.
“The way investors have made money from Japan up until now and what will be required to make money from here will be different. So less focus on a narrow group of blue-chip exporters and more work around companies with higher domestic demand exposure.”
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