The Nikkei 225 fell 11.4 percent yesterday, its biggest one-day fall since the 1987 stock market crash.
The fall in Japan was mainly a reaction to the previous day's fall in the US though and made little to no impact on yesterday's US trading as stocks there jumped. From Bloomberg:
U.S. stocks rose for the first time in three days as oil's retreat below $70 a barrel sparked a rally in consumer companies and prospects of a government bailout of bond insurers reversed a slide in financial shares.
Ambac Financial Group Inc., the second-largest bond guarantor, jumped 48 percent after saying it will present a rescue plan to the Treasury Department...
The S&P 500 advanced 38.59 points, or 4.3 percent, to 946.43. The Dow rallied 401.35 points, or 4.7 percent, to 8,979.26. The Nasdaq Composite jumped 5.5 percent to 1,717.71. About four stocks gained for each that fell on the New York Stock Exchange...
Oil fell and gasoline tumbled after a U.S. government report showed stockpiles increased more than twice as much as forecast. Crude for November delivery fell $4.69, or 6.3 percent, to $69.85 a barrel in New York, the lowest settlement since August 2007. It touched $68.57 a barrel, the lowest since June 27, 2007.
This time, the stock market ignored continuing negative news on the economy. From Bloomberg:
Industrial output fell 6 percent in the third quarter, the most since 1991...
Shutdowns caused by hurricanes and a Boeing Co. strike caused production at U.S. factories, mines and utilities last month to decline 2.8 percent, the most since 1974, after a 1 percent drop...
The Fed Bank of Philadelphia's general economic index plunged to minus 37.5 this month, worse than forecast and the lowest reading since October 1990, from 3.8 in September, the bank said today...
Homebuilder confidence slid this month to the lowest level since record-keeping began in 1985... The National Association of Home Builders/Wells Fargo index of builder sentiment decreased to 14, less than forecast, from 17 in September, the Washington-based association said today.
Separately, the Labor Department said initial jobless claims fell last week as job losses related to the Gulf Coast hurricanes subsided, while total benefit rolls rose to the highest level in five years. First-time applications declined by 16,000 to 461,000 in the week that ended Oct. 11.
Consumer prices were restrained by declines in fuel costs, automobile prices and airline fares, Labor Department figures showed. The consumer price index was unchanged after a 0.1 percent drop in August. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.
But markets know that the Fed is shoving cash into financial institutions at a pace never seen before. From Reuters:
Banks and dealers' overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week's $420.16 billion per day.
No wonder that Morgan Stanley's Joachim Fels says that there are long-term inflation risks.
While decisive fiscal, monetary and regulatory action is likely to prevent a 1930-style depression, we think that a recession in the industrialised world is still in the cards...
With oil prices down sharply, headline inflation in the US and in the euro area is likely to drop significantly towards and below 2% over the next 6-12 months. However, longer-term inflation risks beyond the next two years or so have risen, in our view. This is because the global monetary stance now looks likely to be more expansionary in the foreseeable future than previously thought...
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