EBC Markets Briefing | Asian stocks tumbled on slowdown fear

Asian stocks slipped to a three-week trough on Monday, with Japan leading the declines, after US jobs data proves that the Fed may have waited too long to cut interest rates.

The Nikkei 225 index slumped to its lowest in a month, as the yen’s recent advance crimped the earnings outlook for exporters amid discouraging signs of growth that was slower than estimated in Q2.

Political uncertainty in Japan is another risk as the ruling party picks a new leader. About a dozen candidates are vying to become the next PM, while the economy is expected to slide into fifth place.

China’s economy remains in the doldrums and investor euphoria about AI is waning, adding to headwinds. Both the A50 and the Hang Seng index were heading for another yearly decline.

The S&P 500 and the Dow had their biggest weekly drop since March 2023 the Nasdaq 100 registering its biggest weekly drop since November 2022, as valuation concerns reemerged.

The S&P 500 is trading at a P/E ratio of nearly 21 times expected forward 12-month earnings estimates as of Thursday, well above its historical average of 15.7, according to data from LSEG.

The benchmark index rebounded quickly following a break below 5,400 – a proven solid support level, so we see little downside room with potential resistance at 5,500.

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