Nomura’s Jens Nordvig expounds on last night’s stunning 7% plunge in Japan’s biggest market.
There were probably three main catalysts for the Nikkei gap lower overnight. First, the SPX had a very weak close, following confusing about Fed policy going forward. Second, the volatility in the JGB market finally saw negative spill-over effects on the Nikkei. Third, the Chinese PMI figures raised concerns about Asian growth. But the bigger issue was not the catalyst, but the size of the run-up. Before the gap lower, the Nikkei was up 50.3% on the year (and up 12.7% in May alone).
I would argue that the move is more about position squeeze than a broader macro concern. The Fed has not changed anything yet (and the SPX is only down 1.5% from Tuesday’s close). The JGB market now (ironically) looks calmer. The drop in the Chinese PMI was not entirely unexpected, and there is no particular reason why it should have impacted the Japanese market so much more than the other Asian markets (Kospi down only 1.2%).
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