Just now, the Japanese stock market and the Korean stock market made a massive counterattack across the board. The Nikkei 225 index once rebounded by more than 10%, while South Korea's KOSPI stock index once rebounded by more than 5%. After yesterday's sharp decline, the stock markets of these two countries made a very eye-catching counterattack this morning. At the same time, U.S. stock index futures also rebounded sharply after the market closed.

Japan and South Korea counterattack

On Tuesday morning, the Nikkei 225 Index futures hit a circuit breaker upwards, indicating that Japanese stocks may rebound on Tuesday.

In early trading, the Japanese and Korean stock markets went crazy. The Nikkei 225 index once rose by more than 10%. Yesterday, the index fell by 12.4% to close. The South Korean stock index once rose by more than 5%, but also fell significantly yesterday. The MSCI Asia Pacific index rose 2%.

How was the counterattack achieved

Analysts believe that the strong rebound may have something to do with the corresponding country's expected management.

South Korea stated that the government and the Bank of Korea have sufficient policy capabilities and will take measures in the event of excessive market volatility, while the foreign exchange and currency markets show stable trends. Chief Cabinet Secretary Hayashi Masanori said that the Japanese government will continue to observe market trends and stabilize economic and financial operations. On the other hand, the market has fallen too much in a single day, and there is also a need for a rebound. The Japanese yen also started to weaken sharply today.

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South Korea said the government and the Bank of Korea have sufficient policy capabilities and will take measures in the event of excessive market volatility

A senior official in the South Korean Presidential Office said on the 5th that the Presidential Office, the government and relevant departments will pay close attention to stock market trends 24 hours a day and take measures according to the emergency plan when necessary. The government held a financial risk assessment meeting on the morning of the 5th, and the Financial Commission and the Financial Supervisory Service jointly held an emergency inspection meeting in the afternoon to understand the market situation. On the morning of the 6th, the Deputy Prime Minister for Economic Affairs, the Governor of the Bank of Korea (Central Bank), the Chairman of the Financial Services Committee and the Dean of Financial Supervision will attend a regular symposium on macroeconomic and financial pending cases. Participants will analyze the market trends of major stock markets in Europe and the United States on the evening of the 5th, and discuss comprehensive plans to stabilize the market. It is reported that President Yoon Seok-yue, who was on vacation, listened to a report on the stock market crash at his vacation spot that day, which showed the determination of the Korean government and the Bank of Korea to repair the excessive market fluctuations this time.

Japanese macro data falls short of expectations

Judging from Japanese data, the average monthly household income in Japan actually increased by 3.1% year-on-year, but household expenditure data in June fell more than expected year-on-year, with an actual decrease of 1.4%. A larger-than-expected fall in household spending could dampen the Bank of Japan's plans to raise interest rates. In early trading today, the Japanese yen fell significantly. The Japanese yen's decline is conducive to the rebound of global stock markets and is also conducive to the reversal of the Japanese yen carry trade being alleviated to a certain extent.

Market Reaction

Chris Weston, head of research at brokerage Pepperstone, said that Asian stock markets saw a shocking and historic move yesterday, mainly due to the large liquidation of margin positions, and a strong reverse rebound is expected to open today. However, he warned that the Nikkei's implied volatility has reached as high as 70%, which means that the market may continue to be volatile for some time. After such a drastic leverage adjustment, Japan's major banks have suffered heavy losses, and only the bravest investors will have the confidence to buy.

In addition, the U.S. market did not experience the expected plunge last night. Although the decline was relatively large, the index rebounded strongly late in the session, which to a large extent eased the bearish atmosphere at the opening of the Asia-Pacific market.

Has the problem been resolved?

So, has the stock market stopped falling? Has the issue been resolved? Judging from the "calm and calm" response of the Fed, there seems to be no obvious change. It seems that the Fed believes that it is not yet in urgent need of bailout.

First of all, the size of the Federal Reserve's overnight reverse repurchase agreement did not suddenly drop, which means that there was no huge release of liquidity.

Secondly, the Fed did not seem to have much reaction to Monday's sharp drop. Chicago Fed President Austan Goolsbee said the central bank will take action to "fix" any signs of deterioration in the U.S. economy. But the Fed believes that the U.S. economy does not appear to be in recession.

Could Sam's Rules be invalid?

The latest U.S. non-farm data released last Friday showed that the U.S. unemployment rate rose to 4.3% in July, the highest level in three years, triggering the Sam Rule, a recession indicator with an accuracy of 100%.

Sam's Rule states that a recession is likely to begin when the three-month moving average of the U.S. unemployment rate rises by more than 0.5 percentage points relative to the lowest point in the past 12 months. This rule has been 100% accurate since the 1970s.

However, Fed Chairman Powell also mentioned at the press conference that he is aware of the "statistical law" of "Sam's Rule", but pointed out that all data so far indicate that the labor market is normalizing.

Since the outbreak of the new crown epidemic, the U.S. economy has not followed the traditional recession and recovery model. Therefore, even if the unemployment rate rises to the stage that triggers the Sam rule, it may not accurately reflect the economic recession. Sam believes that the current rise in unemployment is more driven by the expansion of the labor market, especially the increase in immigration. In this case, the effectiveness of Sam's law may be distorted.

In addition, Goldman Sachs Group pointed out that although the unemployment rate has increased, this increase in unemployment has not been accompanied by an increase in layoffs that is common in history, which means that the economy has not fallen into a reduction in consumption caused by unemployment and income loss, which in turn triggered more A vicious cycle of multiple unemployment. This phenomenon indicates that the rise in unemployment breaks the historical pattern and that Sam's Law may not apply to today's conditions.

Goldman Sachs further analyzed that the rise in unemployment is partly due to the increase in labor supply, especially the influx of immigrants, while employment growth has not yet fully caught up with this change. Therefore, the current rise in unemployment cannot be explained simply as a deterioration in the economy.

Although labor demand has weakened, the Fed has enough room to cut interest rates and act quickly to support economic growth if necessary. This also means that even if unemployment rises, the economy still has policy tools to control it and avoid falling into a deep recession.

Has the global stock market gradually stabilized?

On Monday, the ISM services PMI index for July released by the Institute for Supply Management rebounded to 51.4, in line with market expectations. The employment index jumped 5 points to 51.1, indicating that last week's non-farm payrolls report may have exaggerated the weakness in the U.S. labor market.

Ritholtz Wealth Management analyst Callie Cox analyzed the U.S. economy and said that the economy has not yet entered a crisis, but it is indeed in the danger zone. The Fed needs to be wary of risks in the job market. There are no real problems yet, but conditions are deteriorating and the Fed may be falling behind reality again.

Hideyuki Ishiguro, chief strategist at Nomura Asset Management, said: "The panic selling may have ended and investors may buy back stocks. Still, today's price action may be a roller coaster due to rising anxiety in global markets."

Citigroup strategist Ryyota Sakagami wrote in a research note: "We believe Japanese stocks have priced in a mild U.S. recession and a rise in yen to 140 yen per dollar, with limited downside...However, we expect a shift in recovery It will take time and risk-off trading will temporarily dominate.”