Stock trading illustration.

JAKARTA (TheInsiderStories) – Asian indexes closed sharply lower and U.S. stock indexes declined on Tuesday following massive losses seen stateside in the last session.

Jakarta Composite Index (JCI) dropped 111.132 points (1,69 per cent) to 6,448.53 after after moving in the red zone all day.

Japan’s Nikkei 225 closed down 4.73 percent, or 1,071.84 points, at 21,610.24 as stocks across sectors pulled back.

The Hang Seng Index was down 4.39 percent by 3:31 p.m. HK/SIN as stocks sold off across sectors. Among financials, heavyweight HSBC fell 2.96 percent and China Construction Bank lost 5.99 percent ahead of the market close. Tech giant Tencent tumbled 6.17 per cent by 3:36 p.m. HK/SIN.

Overnight, on Wall Street, the weak performance continued, or in fact, intensified. The Dow Jones Industrial Average plunged a whopping 4.6 percent, closing at 24,346 points. The S&P 500 and Nasdaq fell 4.1 percent and 3.8 percent, respectively.

Global intraday trading. (Info graphic: The Insider Stories)

The correction is, however, in line with many analysts’ forecasts. After a sustained period of rising stocks – supported by ultra loose monetary policies in big economies – a correction is bound to occur. And the sharper the rise, the sharper the correction.

Several inter-related issues in the United States of America now seemingly made this bubble burst: rising expectations of more aggressive monetary tightening by the Federal Reserve, sharply rising US bond yields, and expectations of rising US inflation (caused by a surge in US jobs growth in January 2018).

“The entire global market is experiencing a trade off because of sentiment for future U.S uncertainty,” said Tito Sulistio Indonesia Stock Exchange CEO on Tuesday (6/2).

However, Sulistio added the domestic market will soon rise as the publicly listed companies release their financial statement immediately. He believes, the performance of the majority of the company over the past year was moving in the good performance.

“There is a slight upheaval in the market, but our market is still high because the fundamentals are strong enough, if there is this momentary perception,” he said.

Bond Yield Surge as Global Market Jittery

Sentiment of a negative rise in global interest rates also rippled onto the domestic bond market. From the end of 2017 until the end of January 2018, the 10-year Government Securities yield actually moved down to almost 5 per cent.

However entering February, the market was fussed by the issue of US interest rate hike will be faster than expected, since the economies of developed countries are increasingly recovering: interest rate hikes are just a matter of time.

The bond market is very sensitive to interest rates. When they seem like they are going to rise, bonds usually respond first. And since one of the funding sources of a financial institution is bonds, the increase in yields will be responded to by an increase in banking interest rates. It threatens to become a vicious cycle.

Email: elisa.valenta@theinsiderstories.com