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Japanese shares opened strongly on Friday, building on overnight gains on Wall Street and bringing an upbeat end to one of the most tumultuous weeks in Tokyo’s market history.
The Topix index rose about 1.5 percent in the first hour of trading on Friday, matching a similar gain in the narrower Nikkei 225. The yen, whose rapid rise played a major role in the fall in Tokyo stocks on Monday, traded relatively flat at around 147.2 yen to the dollar.
On Thursday, the United States share US jobless claims posted their strongest daily gain since November 2022 as a drop in US jobless claims helped ease fears of a looming recession.
Traders said concerns about the U.S. economy remained a key driver of sentiment. A week earlier, a more negative jobs report stoked recession fears and contributed to a record sell-off in Tokyo on Monday, wiping out 12% of Japan’s main stock index.
On Tuesday, when brokers were able to convince investors that the sell-off had gone too far, stocks rebounded with their biggest one-day gain since 2008. By midday Friday, the Topix had recovered enough to be down just 1.5 percent from its market close a week earlier.
Overnight, the benchmark S&P 500 index rose 2.3 percent, its best day in nearly 21 months, while the tech-heavy Nasdaq Composite gained 2.9 percent — its biggest daily gain since February. The gains helped narrow some of the losses suffered this week. sell off.
The development followed data on Thursday showing new U.S. jobless claims — seen as a gauge of job losses — fell to a one-month low. That provided relief to investors after weaker-than-expected payrolls data last Friday sparked a sharp sell-off across stock markets.
“Last week’s jobs report sent the market tumbling,” so “it makes sense that it’s the labor market highlight that calms the market” this week, said Kristina Hooper, global strategist at Invesco.
Data from the U.S. Department of Labor released Thursday showed initial jobless claims for the week ended August 3 came in at a seasonally adjusted 233,000, down from the previous week’s upwardly revised 250,000 — and below economists’ forecasts of 240,000.
By contrast, last week’s payrolls report showed the world’s largest economy added just 114,000 jobs in July, far fewer than the consensus forecast of 175,000 – sending stocks tumbling in volatile trading on Friday and Monday, and triggering a sharp rally in government bonds as investors increased bets that the Federal Reserve would need to cut interest rates immediately.
The Vix index, which is expected to reflect the volatility of the US stock market, known as Wall Street’s “fear gauge”, peaked at 60 on Monday, well above its long-term average of around 20, before falling.
The volatility index was at around 24 on Thursday, but the day’s stock gains still left the S&P down about 2.3 percent from last week’s close.
For Tim Murray, multi-asset strategist at T Rowe Price, the unemployment report was “a big positive surprise after we’ve seen a series of negative surprises.”
Invesco’s Hooper points to a “healing process underway — but with the caveat that markets will be in a state of stress because nothing has changed with the Fed. They won’t be doing any kind of rate cut before their September meeting.”
“I think it will take time for the market to normalize but we have to ask ourselves what caused that sell-off and I think it’s irrational,” she added. “I don’t think that tells us we’re going to have a major recession.”
Until recently, the stock had been on a particularly strong run, fueled by hope for a “soft landing” Thanks to the Fed’s success in lowering inflation without causing a recession, and thanks to its enthusiasm for artificial intelligence companies.
Murray noted that chip giant Nvidia’s second-quarter earnings are due later this month. Those numbers “are always going to be read into the broader AI infrastructure,” he noted. “That could be what really drives the market.”
“But even then, I would be surprised if that happened. It’s more likely that we’ll go back to slow growth. And if we have some negative data points along the way, it could easily come down very quickly.”
