After its worst fall in years, the Asian stock market is recovering

© Unsplash/Maxim Hopman

This Monday, August 13, the Asian stock market showed signs of improvement, a week after a collapse that had investors fearing the worst. The situation remains delicate, however. Key data published this week should allow analysts to see things more clearly.

Slight recovery…

Dragged down by a sudden fall in Japan, the main stock indices plunged last week. A debacle that originated in a combination of worrying economic factors, notably a rise in unemployment in the United States. Circumstances that have revived fears of a recession in the country.

More fear than harm, for now at least. Global markets, and especially Asian ones, showed a slight recovery at the start of the week, marking the renewed confidence of investors. The MSCI Asia-Pacific index rose as much as 1%. Across the Atlantic, the S&P 500 was flat while the Nasdaq edged higher. This was partly due to the rise in Japanese stocks after a public holiday, as the market closure removed a source of volatility. The yen weakened in parallel.

Despite everything, the Nikkei 225 and the Topix have both lost more than 7% since the end of July. And many doubts remain about the stability of the market. The VIX index, an indicator often nicknamed the “fear index” on financial markets, remains particularly high compared to normal. This reflects a form of persistent anxiety, explained by various economic and geopolitical elements.

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Decisive data to come

Tensions in the Middle East, between Israel and Iran, are maintaining pressure on the markets, particularly on oil prices. At the same time, the state of the Chinese economy is causing concern. The Middle Kingdom is struggling to revive its growth, weighed down by a real estate and financial crisis. This situation is having a direct impact on commodity prices, while stock transactions are at their lowest in more than four years in the country.

On Thursday, August 15, China will release key data on retail sales and industrial production. Investors are also looking ahead to the July U.S. Consumer Price Index (CPI) data, due on Wednesday. This will directly influence the U.S. Federal Reserve’s (Fed) future interest rate decisions; higher-than-expected inflation could push it to keep rates high for longer.

All of this data will provide insights into the overall health of the economy and consumers’ purchasing power. They will directly affect stocks, bonds and currencies, impacting short-term market trends.

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