Nikkei Enters Bear Market to Extend Global Rout: Markets Wrap

(Bloomberg) -- The Nikkei 225 Stock Average slid into a bear market, as a global equity rout continued unabated in the last week of the year, with renewed turmoil in Washington rattling investors. The yen and Japanese bonds rallied.

The Japanese benchmark fell 5 percent on Tuesday, widening its drop to 21 percent from its Oct. 2 peak, as it took its cue from the S&P 500’s worst trading session before the Christmas holiday. Chinese shares, the other major Asian market open on Tuesday, also declined as investors shrugged off a pledge by the government to do more to support companies.

Investors looking to Washington for signs of stability that might bolster confidence instead got further unnerved on Monday. President Donald Trump blasted the Federal Reserve, blaming the central bank for the three-month equity rout days after Bloomberg reported he inquired about firing the chairman, while Treasury Secretary Steven Mnuchin sought to assuage rising anxiety with a hastily-called meeting of top financial regulators.

“The Trump bubble, which has brought gains in U.S. stocks and the dollar, is collapsing,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co. in Tokyo. “The more stocks fall, the more investor sentiment gets worse, so there’s more people who need to sell temporarily, such as stop-loss selling.”

The tumult in Washington added to concerns of investors, who have seen equities worldwide tumble on concerns about a slowing U.S. economy, the pace of rate hikes by the Federal Reserve and the ongoing trade war. The S&P 500 plunged almost 3 percent to end at a 20-month low on Monday.

Read more on how the dollar is exposed to dysfunction and paralysis in Washington

“It’s just like panic selling,” said Nobuhiko Kuramochi, head of investment information at Mizuho Securities Co. in Tokyo. “The equity markets are pricing in concerns over a slowdown in the global economy and a downward revision in corporate earnings in advance. Some investors are reducing their exposure to equities in their portfolio” by increasing cash or bonds.

Japan’s benchmark 10-year bond yield slipped to zero percent for the first time since September 2017, while the yen advanced for an eighth day as investors sought haven.
Equities in Shanghai dropped, despite plans by policy makers to improve financing for the private sector and implement tax cuts. PetroChina Co. led the decline after crude fell below $45 a barrel.

Markets may be overreacting, Japan’s Finance Minister Taro Aso said, adding that he’s not overly worried. Still, an emergency margin call was triggered for the nation’s index futures.

These are the main moves in markets:

Stocks

• The Nikkei 225 Index fell 5 percent to close at 19,155.74
• The Shanghai Composite Index declined 1 percent to 2,502.509 at 2:06 p.m. local time

Currencies

• The Japanese yen rose as much as 0.4 percent to 110.00 per dollar, the strongest level since August
• The Bloomberg Dollar Spot Index extended a decline after dropping 0.4 percent on Monday
• The Chinese yuan advanced 0.3 percent to 6.8773 to the dollar

Bonds

• Japan’s 10-year bond yield pared a decline, and is down 3 basis points to 0.01 percent
• The benchmark yield in China also dropped 3 basis points, the most in two weeks

Commodities

• Gold was steady at $1,268.54 an ounce, after rising by as much as 1.1 percent on Monday to its highest since June
• Chinese oil futures fell by the daily limit from Monday’s settlement price to 351.6 yuan a barrel in Shanghai

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