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A global stock slump deepened on Friday, with Japanese equities suffering their worst day in eight years, as fears over the resilience of the US economy piled pressure on a market already reeling from a sharp sell-off in semiconductor shares.
Tokyo’s Topix benchmark — which reached a record high last month — tumbled 6 per cent in its biggest one-day fall since 2016, hit by worries about the impact of a rising yen on Japanese corporate profits.
US stocks were set for further losses on Friday after the latest in a string of underwhelming tech earnings, extending Thursday’s 2 per cent decline for the Nasdaq Composite, which was exacerbated by weak manufacturing and employment data in the US. Nasdaq futures pointed to a further 1.7 per cent loss at the Wall Street open.
“Tech stocks can’t just get more expensive forever, interest rates have started falling at last in most regions and the turn in the cycle in Japan is a seismic event,” said Neil Birrell, chief investment officer at Premier Miton Investors, who called the rout “an inflection point”.
“Investors will be repositioning, but it won’t be linear, volatility will be a major factor,” he added.
Intel shares plunged 21 per cent in pre-market trading after the company revealed plans to axe 15,000 jobs. Amazon shares fell 8.5 per cent in pre-market trading after its profit outlook fell short of Wall Street estimates.
The selling also spread to Europe, where the continent-wide Stoxx Europe 600 was down 1.8 per cent by late morning. Dutch semiconductor equipment maker ASML fell 8.3 per cent.
The weakness across global equities came after US manufacturing data on Thursday suggested a slowdown in the country’s labour market, cementing expectations for a string of Federal Reserve interest rate cuts this year. The US central bank kept rates on hold earlier this week but signalled it could deliver the first reduction in borrowing costs in September.
Signs that the jobs market is losing momentum will sharpen investors’ focus on the monthly US jobs report later on Friday. Emmanuel Cau, head of European equity strategy at Barclays, said markets had endured a “brutal” start to the month, with July’s non-farm payrolls report likely to dictate the “fate of equities for the rest of summer”.
Earlier in Asia, South Korea’s Kospi index fell 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 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.
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,” said one senior broker at a Japanese securities house. “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.”
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 Fed appears poised to cut rates, has propelled the yen far higher than many had expected.
At Friday’s level of ¥148.98 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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