Despite a drop in the Nikkei 225, Japan’s stock index, the Japanese Yen has seen 3 straight days of gains now against the US Dollar. In contrast, the Nikkei dropped back below 18,000 points, a one week low.
Traditionally a very stable currency pair due to both currencies being strong safe havens, USD/JPY was steadily rising in the months leading up to March. However just like every other market, it was not safe from the extreme volatility brought on by the global coronavirus outbreak in March. After dropping all the way below 103, the Dollar eventually rebounded against the Yen to trade at ¥111 to the Dollar, influenced by the rise in strength of the greenback following a pullout from investors from assets back to liquid cash in order to minimise risk. It is currently trading at ¥107 against the greenback.
Investors are also looking towards the Yen once again as a safe haven, as it remains a strong currency in times of economic uncertainty, and this is certainly one of them.
However, the Yen's current status may be short-lived, amid growing sentiment that Tokyo may soon come under lockdown due to the sharp increase in coronavirus cases in the city. This new rise comes shortly after the 2020 Tokyo Olympic Games were announced to be postponed until Summer 2021, leading some to question whether or not the Japanese government had been suppressing figures in order to keep the Olympics going ahead.
The governor of Tokyo has urged citizens to avoid karaoke- the popular Japanese pastime- in order to maintain social distancing, despite warnings from senior health officials to put the city under lockdown before it is too late. Japan’s economy minister has warned that a lockdown of the country’s biggest cities would have disastrous effects on the Japanese economy. Prime Minister Shinzo Abe has also stated that a state of emergency is not yet needed, but that Japan could enter a situation like Europe very soon.
The Dollar also weakened once again following White House officials projecting that around 100,000 to 240,000 more deaths would occur in the United States due to the coronavirus. US President Donald Trump also gave warnings that the coronavirus would continue to worsen, backtracking on his statements from the previous week that he had expected to see the States reopen by Easter. However, he is still resisting calls to issue a nationwide warning to tell Americans to stay home. The Trump Administration’s lack of action has led to State governors to take action of their own. California and New York are continuing to be under lockdown, and an increasing number of states are also extending or adding their own stay at home orders.
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The Nikkei 225, or Japanese Stock Index had an 8% gain for the day, following on from its 7% gain from the previous day. Less than a week ago the Nikkei had just hit lows not seen since 2017, falling below 20,000 points. However in just 2 days it has made back its losses and is now rapidly on the rebound back to the 20,000 mark.
As well as this, other Asian stocks are on the recovery as well, with the Hong Kong Hang Seng Index, Korean KOSPI, and Shanghai Composite all on the upside.
In Europe, the UK FTSE 100 is following suit, with a 2.5% increase for the day.
Following on from this, it is reasonable to expect the US stock indices to produce a similar pattern in the upcoming days. US stocks have already started to recover, with the Dow Jones posting its best single day session since 1933, rising 11.4%.
This market optimism comes after the US Senate finally agreed on passing the $2 trillion coronavirus bill. The bill, which had been in dispute over the last 2 days due to being blocked by the Democrats, has now been settled with a deal being reached, although the final vote still needs to be made. Although details still need to be agreed upon as well, the gist of the bill is that $250 billion is to go towards directly paying individuals and families, $350 billion on small business loans, and $500 for other companies, amongst others. This is expected to be the largest ever economic stimulus package ever passed.
The 2020 Tokyo Olympics have also been officially postponed, after several weeks of discussions. While Japan was originally adamant about the Olympics going ahead despite the alarming growth of the coronavirus pandemic, today they were finally forced to postpone the games until 2021. Japan was initially extremely reluctant to make this move, as it would've been the first time in the 124 year history of the modern games that they would have had to be postponed. Olympic officials said that the games would be postponed to a date before Summer 2021, but no later than that, and that the flame would continue to stay in Japan for the time being.
In other news, gold is facing a historic short squeeze, as New York is currently under lockdown. The movement of gold has been severely impeded by the coronavirus, as metal refineries have been forced to close, and all travel has been severely restricted. Normally, in the case of such a shortage in New York, suppliers would ship from overseas locations. But the travel restrictions mean that there is the possibility that the supplies could become trapped, making banks and traders reluctant to do so. Even in other times of economic hardship such as war, gold refineries have not had to close.
The price of gold, which had been on the recovery as well this week, has now fallen again, down 1.8% back towards the $1,600 mark after looking like it would reach $1,650. This move could also be attributed to investors discarding the safe haven asset after the announcement of the $2 trillion stimulus package, as risk appetite improved.
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Continuing on the sell-off from yesterday, US stocks have continued to drop, with the NASDAQ 100 falling by a further 140 points from the previous trading session. This is a 1.52% drop for the day, and a drop of 7% since the beginning of the week.
The Dow Jones also dropped another 870 points, a plunge almost as bad as the previous day’s fall of almost 1000 points.
Investors are undeniably panicked and fearful as the coronavirus continues to spread throughout the world at a concerningly rapid pace, and US officials are warning residents to brace for significant disruption as they prepare for it to hit their shores.
There seemed to be a brief recovery for the NASDAQ over the course of yesterday back to the 9,200 mark, but it was not enough to reverse the sharp losses incurred and today has continued to drop, falling below 9,000 and currently trading at 8,900 points.
Similarly, with the cases in South Korea and Japan, the Asian markets have plummeted as well. The Nikkei, Japan’s stock index, is down 3.3%, and the Shanghai Composite 2%.
In Japan, with the Diamond Princess cruise ship still under quarantine, a 4th person has died. South Korea is also struggling to contain their outbreak as they are now the country with the highest number of cases outside of China, almost reaching 1000.
The virus has rapidly contaminated other parts of the world, with it currently spreading rapidly across the Middle East. Iran has reported 95 confirmed cases, but it is suspected that the actual number is higher. The center of the outbreak is Qom, a shrine city with lots of passing travelers. Iran’s deputy health minister has said that he has contracted coronavirus, after just speaking to reporters on Monday and denying that Iran was covering up the severity of the outbreak in their country.
In Europe, Italy continues to be the site of the biggest outbreak, with an 11th person having now died. Germany and Spain have just recently also confirmed new cases as well, although no deaths yet. Germany's cases seem to have originated from a man who came back from holiday in Milan on Tuesday.
The Nikkei, or Japanese Stock Market Index, is down 1.6% after a fall of 330 points, marking a fourth straight day of losses.
The most obvious factor affecting this is the continuing fears of the coronavirus, which is affected all Asian markets as the severity of the virus only worsens.
The current figures for the coronavirus are 72,436 cases, and 1,868 deaths. This is an increase of 98 deaths from the previous day, with 93 of those being in Hubei province, and 5 outside it. The number of cases has also increased by 1,886, most of which are also from Hubei.
However these figures are actually positive, as for the first time since January, the number of new cases per day has fallen below 2,000. This could be a sign that the measures being taken Chinese government, as well as global efforts to contain the epidemic, are working.
But regardless of this information investors are pricing in more damage done to the market as it is still unclear just how long the coronavirus will last, and just what lasting impacts it will have.
The other major factor concerning the continued drop in the Nikkei was the GDP data released yesterday from Japan, showing a decrease of 6.3% for the last quarter of 2019. These numbers are the result of the consumption tax being increased a second time, from 8 to 10%. This move was seen as baffling by economic analysts, and the decline managed to exceed their already gloomy expectations of 3.7%.
Therefore, with two consecutive quarters of falling output, compounded with the coronavirus causing hits on tourism and disrupting supply chains in auto parts and manufacturing, Japan could very well be headed towards a recession.
“The Japanese Nikkei has suffered two days of losses, amid a very poor GDP print yesterday and analysts citing fears of the Coronavirus outbreak potentially pushing the economy into a Recession. This could be an ominous sign for other key equity markets around the world and Investors will also be waiting on key Tech giants to release more information on how they foresee the virus to impact their revenues. The Nikkei now trades below a key 100 day moving average on the Daily time frame, marking a possibility to hear lower, with key support at 22,630 - lows from earlier this year.” – Anish Lal, BlackBull Markets.