Is it a real problem, or just shock and awe from people unused to seeing a correction in months? MoneyShow's Jim Jubak explains which way he's leaning.
Global meltdown? I've seen headlines this morning saying just that. But to me this looks like profit taking on a huge run up in global markets. So far, no more and no less, even in Japan.
Here's the background: At its high yesterday, May 22, the S&P 500 was up 10% from its low on April 18. The Nikkei-225 was up 21% from its April 18 low. The Nasdaq Composite was up 12% from its April 18 low.
The phrase "Too far, too fast" comes to mind.
The Tokyo market did indeed see a flash crash in the market for Japanese government bonds. Trading was halted after the ten-year bond fell a full point and the yield climbed ten basis points to more than—hold your breath—1%.
The big fear here is that a significant increase in interest rates on government debt will put an end to the Abe government's drive to weaken the yen through massive purchases of assets. I didn't see much timidity from the new team running Japan's central bank overnight: The bank moved to calm the markets by injecting 2 trillion yen.
The yen has moved big today, gaining 1.28% against the dollar. Again, some context. This essentially reverses the yen's drop against the dollar to resistance at 103.50 to the dollar over the last few days. The yen now sits at 101.93.
The Nikkei-225 index closed down 7.3%, with banks and real estate developers taking the worst of the damage. Meanwhile, US indexes have bounced back from their lows of the morning. The Dow Jones Industrial Average, down as much as 126.94 points, was actually up 3.94 points as of 12:30 p.m. New York time. The S&P 500, down by as much as 1.2%, has climbed until it is just 0.19% in the red.
The fundamental news today has been mixed in a way that has been typical lately. The US economy continues to report strength—initial claims for unemployment came in at 340,000, when economists had projected 348,000, and new home sales were reported at 454,000, when 425,000 had been expected by economists surveyed by Briefing.com.
The Chinese economy continues to show worryingly slower than expected growth. The preliminary flash purchasing managers index from HSBC Holdings and Markit Economics fell to 49.6. That was below the 50.4 expected by economists surveyed by Bloomberg. On this index any reading below 50 indicates that the economy is contracting.
Stock markets across Asia fell on the news from China. The Shanghai Composite index closed down 1.13%, and Hong Kong's Hang Seng index dropped 2.54%.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any company mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund's portfolio here.
