NIKKEI225 Correction Fades as Recession Fears Persist

Global stock markets corrected from the rally yesterday, U.S. closed in the red as concerns of recession overtook dovish stance from the Fed and BoJ.

The NIKKEI225 retreated from its highs yesterday to close up 2.8% after being in the green by over 6%. The main U.S. stock indices closed in the red, the NAS100 closed down 1.32% and the DOW down 0.65%.

Dovish comments yesterday, from BoJ deputy governor Shinichi, stating that the central bank would not hike interest rates while the capital markets were unstable. However, the Bond market hasn’t taken the words in earnest.

The treasury auctions for 6-month T-bills and 30-year JGBs both had higher average yields than the previous auctions. The 30-year JGB yield was 2.23%, up from the last auction at 2.19%. The 6-month T-bill average yield was considerably higher at 0.0948%, up from last month’s 0.0396%.

The sharp increase in the T-bill yield shows how the market is gauging the likelihood of further hikes in the coming months. Reports were also released overnight for foreign investment in Japanese bonds and stocks.

The stock market saw another large decline in foreign holdings of ¥641.7 billion. A second consecutive outflow after last month’s decline of ¥612.9 billion. Conversely, foreign investment in JGBs increased by ¥669.7 billion.

The asset flows show a preference of investors to exit stock holdings and acquire more bonds. This behavior follows from the attractiveness of bonds as yields increase. While investors see stocks as less attractive.

Technical View

The day chart below for the NIKKEI225 shows a market in a bear trend. This Monday’s selloff created the current bottom of the bearish trend. The candles in the yellow area have created a pattern that is typically bullish when it appears at the bottom of a dip.

However, that corrective trend may be exhausted shortly, since yesterday’s candle failed to break the resistance level of 34,982 (grey line). And it looks like today’s candle may not get past that resistance level either.

Should the break above the grey line fail, the next support level is at 30,469 (blue line). The last dip failed to test it, making it a particularly strong support level.