Today, Christmas Day, December 25, 2018, the Nikkei 225 dropped 5 percent while Topix fell to its lowest level since November 2016, a 20-month low on Tuesday after the slide on Wall Street accelerated lower. The drivers continue to be the US – China trade war, the Fed hikes and the growing fear the the US economy and perhaps the Chinese economy will fall into recession. Now the chances of a slowdown in the US economy are high, and a drop from 4.0 percent GDP growth to 2.0 percent, as some analysts are expecting by the end of 2019, is actually welcomed as a short-term growth pause will take away any concern of inflation. And there are analysts who believe that China GDP will drop from 6.7% in late 2018 to 6.2% in mid to late 2019. Again it is important to note that a slowdown is welcomed but a recession would be a disaster for global equity and economies.
Today, the Nikkei 225 ended the day down 5.01% at the 19,155.74 level while touching the 19,117.96 level briefly – note this is the lowest level since April 2017. Topix traded lower as well, falling by 4.88% to close at 1,415.55 – and briefly touching a low of 1,412.90 – the lowest since November 2016. The S&P 500 had its worst month in 10 years and the S&P 500, the Dow and Nasdaq are all falling to or well into the 20 percent level on the downside turning these indices into a bear market, or very close to it. Momentum still seems to be on the downside and will likely be that way for another week.
If you are short the Dow, S&P 500 or the Nikkei 225 and Topix, you might want to consider covering shorts in the next 5 to 7 trading days.
As a precautionary measure, Treasury Secretary Steven Mnuchin called top US bankers on Sunday as the aggressive stock pullback was clearly a capitulation, and said he was calling a meeting of financial regulators to discuss ways to ensure “normal market operations” – likely as a way to bring calm to markets. We think Mr Mnuchin wants to step in front of the growing concerns in the market. Japanese stocks continued lower today with Sony Corp down 5.55 percent, Toyota down 5.25 percent and Nintendo down 4.3 percent. And there was more bad news for Mr Carlos Ghosn, he might have charges brought against him soon. This could cause more pain in Japanese equity.