Tokyo Shares Open Reduce, Extending US Dips
Tokyo shares opened lower. The Nikkei 225 fell 0.47 percent to a total of 26,685.55 in early trade. The Topix index fell by 0.41 percent to 1,906.89 points. Shanghai officials have launched another mass test after about 120 new cases were reported over the weekend. Macau, the casino hub, has begun a week-long lockdown to prevent the worst of the coronavirus outbreak.
Meanwhile, investors awaited Wednesday’s US consumer price report for June. It will discuss whether aggressive moves by the Federal Reserve to tighten monetary policy are needed. Japanese stocks open lower after U.S. stocks decline. This has been exacerbated by China’s COVID-19 restrictions following rising infections. The dollar hit 137.40 yen in Asia in New York; 137.41 yen versus 137.00 yen in late Tokyo hours.
The yen was lower two days after Japan’s ruling bloc scored a strong victory in the upper house elections held on Sunday. In Yen’s case, some in the market see an increased majority for the LDP party in the weekend’s upper house election as a quasi-referendum on the country’s ultra-easy monetary policy. Thus, downward pressure on the yen continued. Among Tokyo’s major stocks, Sony was down 1.14 percent at 11,250 yen. Hitachi at 6,503 yen. Uniqlo fell to 68,640 yen or 0.38 percent.
Global Shares and Fears
Global stocks slowed, oil fell and the euro edged closer to the safe-haven dollar. The prospect of further tightening by central banks, a renewed outbreak of COVID-19 in China, and energy shortages in Europe spooked investors. MSCI’s index of Asia-Pacific stocks outside Japan dropped 1.3%. Slipped to its deepest stage in the last two years. US S&P 500 e-minis lost 0.6%. Nasdaq futures fell 0.7%. Euro Stoxx 50 futures were down 0.8%. FTSE futures 0.44%. The euro fell to $1.0005 against the US dollar. It approached parity for the first time since December 2002. Investors fear that the energy crisis will push the region into recession. Risk-on sentiment dominates global markets.
The dollar index, which networks the currency contra six peers, gains to 108.44. This is the highest since October 2002. This week’s focus will be on macro data. It will include US consumer inflation on Wednesday and comments from Federal Reserve officials as investors look for clues on the outcome of the Fed’s upcoming policy meeting before the officials entered the pre-meeting period. Higher inflation will add pressure on the Fed to step up its already aggressive pace of interest rate hikes.
Also high on the list of investors’ concerns is the fact that a growing number of Chinese cities, including commercial hub Shanghai, are adopting new COVID-19 curbs this week to contain new infections following the discovery of the highly contagious Omicron sub-variant. In the afternoon, the Hang Seng index fell by 1.21%. It fell to its lowest level since June 17. CSI300 lost 1.3%. In addition, the rising cost of energy in Europe is a big fear. The largest single pipeline, which will transport Russian natural gas to Germany, is subject to annual maintenance. Flows are expected to stop within 10 days.
Conclusion
Investors fear the shutdown could continue because of the war in Ukraine. This will further restrict the European gas supply and push the Eurozone economy into recession. The benchmark 10-year Treasury yield was 2.9595%. It fell below 3% overnight. Investors purchased safe-haven Treasuries amidst a sell-off on Wall Street. Increased fears also affected oil despite worries about tight supply. Brent crude futures fell to $105.75 a barrel, or 1.3%. Gold was slightly lower. Spot gold traded at $1,728.98 per ounce.
