Nikkei 225
The Nikkei 225 index declined by more than 1% as traders reacted to the mixed economic data from Japan and the overall strong yen. The index is trading at ¥22,084 at 05:38 GMT with more than 80% of constituent companies being in the red.
Most companies in the Nikkei 225 index are in the manufacturing index. This includes companies like Toyota, Isuzu, Honda, and Mitsubishi. According to a survey by Markit, the manufacturing sector is still in contraction even as the world continues to reopen. The PMI came in at 40.1, slightly higher than the previous 37.8. While the sector made some improvements, it is still in contraction.
The report said that the sector was still witnessing low orders, high unemployment rate, and higher costs of doing business. Most manufacturers are still operating significantly below capacity. Also, the foreign market, which is an important market for Japan’s manufactured goods remained tight.
To some extent, this is understandable because the economy was attempting to reopen in June after the state of emergency. Also, since most companies in Japan are net exporters, the fragility of the rest of the world continued to suffer.
However, the contraction of the manufacturing sector only happened in Japan. Earlier today, data showed that manufacturing in China and Australia showed that the manufacturing sector returned to growth in June.
The Nikkei 225 also reacted to grim data released by the Bank of Japan (BOJ). The data showed that sentiment among large manufacturers and non-manufacturers declined to the lowest level in eleven years. The Tankan large manufacturing index declined to – 34 while non-manufacturing index fell to -17. The sentiment declined across the multiple sectors.
However, among the worst-performers were steel and aluminum, textiles, and motor vehicles. Meanwhile, another data showed that Japan’s new auto sales declined by 23% in June, which is a sharp contraction from the previous month.
Most companies in the Nikkei 225 are net exporters. As such, they make more money when the yen is relatively weaker than the dollar. But today, the Japanese yen rose by more than 30 basis against the US dollar as shown below. This is negative for these companies because it makes their products relatively expensive than those from other countries.
There was only a handful of gainers in the Nikkei 225 index today. The best performers were Tokyo Electron, SKY Perfect, Softbank, Advantest, and Fujikura. All these firms rose by more than 1%. On the other hand, the worst performers were Suzuki, Sumitomo Dainnapon, Toppan Printing, Yahoo Japan, and Pacific Metals. These fell by more than 4%.
The Nikkei 225 is down for the third straight day, as shown in the daily chart below. The price is above the 100-day and 50-day exponential moving averages. Interestingly, it is below the ascending trendline, which is shown by connecting the lowest points on April 22, May 7, May 15, and June 15. It is also slightly below the 78.6% Fibonacci retracement level. Therefore, the downward trend may continue as bears attempt to test the 61.8% retracement level.
On the other hand, a move above the 78.6% Fib at ¥22,484 will invalidate this trend because it will send a signal that there are more buyers in the market.
Please note. The Fib retracement is drawn by connecting the lowest and highest points this year.