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Markets roiled by Nikkei’s 7.3 percent slide
LONDON (AP) — Financial markets around the world were roiled Thursday after Japanese stocks suffered their biggest slide since the country was hit by a devastating tsunami more than two years ago.
Several reasons have been blamed for the 7.3 percent fall in the Nikkei index to 14,483.98, including a spike in Japanese government bond yields and unexpectedly weak Chinese manufacturing figures.
While Wednesday’s written testimony to lawmakers in Congress from Fed chairman Ben Bernanke appeared to signal that the central bank was not yet ready to change its super-easy monetary policy, subsequent comments — and the minutes of the last rate-setting meeting — triggered speculation that the pace of asset purchases could slow down.
Much of the recovery in global stock markets over the past few years has had its roots on the extra liquidity that’s flown through financial markets as a number of central banks, particularly the Fed, have pursued stimulus programs. The withdrawal of this new liquidity has, for some time, been viewed as the greatest threat to stocks in particular.
In Europe, the FTSE 100 index of leading British shares, which was only around 75 points off its highest-ever close on Wednesday, was down 1.9 percent at 6,710. Germany’s DAX, which has hit a series of all-time highs recently, tumbled 2.6 percent to 8,306 while the CAC-40 in France was 2.3 percent lower at 3,956.
U.S. stocks, which fell sharply Wednesday, were poised for more declines at the open. Dow futures were 0.9 percent lower while the broader S&P 500 futures fell 1.2 percent.
Those declines though are dwarfed by the scale of the reverse in Japan’s Nikkei, the biggest since March 2011. Some sort of decline in global indexes, especially in the Nikkei, had been anticipated following a run that’s seen many post historic highs.
“The fact that the equity markets fell so hard on these headlines overnight indicates that perhaps investors have been guilty of too much exuberance in recent months,” said Jane Foley, an analyst at Rabobank International.
The Nikkei has been the best-performing major index this year, having risen around 45 percent — before Thursday's loss — to five-year highs. The index has been buoyed by the announcement of an aggressive monetary stimulus from the Bank of Japan, which has piled the pressure on the yen. That development is a potential boon to the country’s exporters and therefore to growth — a favorable backdrop for stock investors.
Many in the markets blamed the Nikkei’s fall on the spike in the interest rate charged on country’s benchmark 10-year bond to above 1 percent for the first time in a year. That unnerved investors at a time when Japan’s already overburdened government finances are vulnerable to rises in interest rates. The interest rate, or yield, later slipped back to about 0.9 percent.
The sell-off is a reminder of Japan’s vulnerability as Prime Minister Shinzo Abe tries to end two decades of stagnation with unprecedented monetary easing, increased government spending and reforms to make the world’s No. 3 economy more competitive.
The level of Japan’s debt is higher, relative to its economy, than even some of the crisis-stricken European countries. But because it is mostly owned by domestic investors, especially huge banks and insurance companies, the country’s credit rating has remained steady. About a quarter of the national budget is interest payments on government debt.
Markets elsewhere in Asia sank sharply after a survey showed China’s manufacturing contracted in May. HSBC said its preliminary Purchasing Managers Index fell to a seven-month low of 49.6 in May from April’s 50.4. Numbers below 50 indicate that activity is contracting. Analysts had expected a more modest decline to 50.3.
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