Nikkei slumps despite Japanese GDP rebound

The feel-good end to last week that helped the S&P500 finish at a record high for the 48th time this year, albeit on the lightest trading volume of the year, has failed to carry over into the start of the new week.

Japan flag

Key Asian equity indices are mostly trading lower today, likely in some part a delayed response to Friday's University of Michigan's index of consumer sentiment that declined by 11.0pt to 70.2, the lowest level since 2011 on concerns over the virus's resurgence. 


Also playing a part in today's falls, evidence that slowing global demand and rising delta cases are hindering the reopening of the Chinese economy as activity data released earlier today was significantly weaker than expected. 

Retail sales increased by 8.5% in July, well below the 12.1% rise viewed in June. Industrial production increased 6.4% versus the median estimate of 7.9% and well below Junes 8.3% rise. The unemployment rate rose to 5.1% from 5.0% in June. 

All of this has overshadowed preliminary Q2 Japanese GDP data released this morning, which showed a stronger than expected annualized gain of 1.3%. Robust private consumption helped the Japanese economy avoid slipping back into recession following its -3.9% fall in Q1. 

However, with virus cases also rising sharply in Japan, the Nikkei 225 has been caught up in the downdraft of negative sentiment to be trading down -1.95% at 27740 as we go to press.

After reaching its highest level since 1990 in February this year, the Nikkei has spent the past six months correcting the strong run higher, within a trend channel viewed on the chart below.

Horizontal support is viewed at 27,000, however, should that level break, there is room for the decline to extend towards trend channel support near 26,000, which is the medium-term buying level. 

Aware that if the Nikkei breaks and closes above trend channel resistance at 28,900, it would signal the correction is complete, and the uptrend has resumed.


Nikkei Daily Chart




Source Tradingview. The figures stated areas of 16th of August 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.