Composed largely of technology companies and susceptible to yen appreciation, the benchmark Nikkei (JAP225) slid more than 1% today, with contracts already retreating more than 2% ahead of the release of the US non-farm employment change, scheduled for 1:30 PM BST. A weakening dollar and a strengthening yen at the same time are putting pressure on Japanese exporters' earnings, leading to a repricing of many listed stocks, while a sell-off in the US semiconductor sector, led today by a nearly 10% sell-off in Broadcom (AVGO.US) is putting pressure on Japanese suppliers such as Advantest. The USDJPY pair is losing nearly 0.6% today, and US bond yields have fallen to record lows since the fall of 2023.
- U.S. labor market data published yesterday, for the most part (except for benefit claims), indicated that vacancies are declining (JOLTS), while the change in employment among private companies is down significantly (lowest reading since early 2021), and services, while still relatively strong, also saw a slowdown in the employment sub-index while the Challenger report indicated 75,000 layoffs in the U.S. economy, in August; breaking a record from the recession-filled Q1 2023.
- As a result, market expectations for a much higher change in non-farm employment (165k forecast vs. 114k previously) and a drop in the unemployment rate to 4.2% from 4.3% in July may prove to be exaggerated. If, on the other hand, we see better-than-expected data - we may see an improvement in sentiment in the stock markets, a strengthening of the dollar and a rebound in USDJPY - and by extension JAP225 contracts as well. So far, we see that fearful of a change in market dynamics, investors have reluctantly returned to the carry trade and liquidated bullish positions in the yen and Japanese benchmarks.
JAP225 (M15 interval)
Momentum after the rebound from the August lows has clearly weakened, and if the US NFP turns out to be weaker than forecast, further appreciation of the yen against the dollar and sentiment in the technology sector could successfully push the index below the 38.2 Fibonacci retracement at 35800 points.
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