France’s CAC 40 slumped 2.78%, Germany’s DAX fell 2.84%, while the FTSE 100 opened 2.19% lower on Monday morning.

However, the euro strengthened against most other major currencies, with EUR/USD jumping 2% since last Friday, as it is seen as a haven currency.

The Japanese stock markets saw significant declines, with a drop of up to 10% on Monday, extending the intense selloffs that followed the Bank of Japan’s rate hike last week. The Japanese yen spiked to its highest level since 3 January.

Markets are experiencing panic selling due to softened economic data in the US, while the Federal Reserve (Fed) remains reluctant to lower interest rates. Investors are concerned that the Fed may be too slow in loosening its monetary policy to avoid an economic recession. On Wall Street, the three benchmark futures were sharply lower ahead of the markets opening and as expected, opened in the red.

Haven assets, including gold, the Japanese yen, the euro, and government bonds, climbed as investors flocked to safer destinations. Additionally, the fear gauge, the CBOE Volatility Index (VIX), spiked 26% to above 23, the highest level seen since March 2023.

The Japanese market rout spills over globally

The two benchmark Japanese indexes, the Nikkei 225 and the Topix, tumbled more than 10%, pushing both into bear market territory, which is defined by a 20% decline from recent highs. This market crash followed the Bank of Japan’s (BOJ) rate hikes and further steps in unwinding the bond-buying program. The measures led to a significant appreciation in the Japanese yen as carry trades of the yen against other currencies have been reversed.

Additionally, rising interest rates have sparked concerns that businesses in Japan, many of which carry high debt levels, may struggle to sustain their operations. Investors have sold off their holdings in the stock markets and converted their cash into yen, anticipating higher returns from the increased interest rates.

The yen strengthened 7% against the USD, reaching its highest level since January, with the USD/JPY exchange rate falling from 154 to just 142.66 as of 7:40 am CEST.

The stock market sell-offs in Japan have rippled through other regional markets due to the Japanese government’s substantial overseas holdings, particularly on Wall Street.

Government bond yields slump, gold spikes, Bitcoin tumbles

Global government bond yields sharply declined due to the prevailing risk-off sentiment, as bonds are typically seen as a safe haven during crisis times. Bond yields move inversely with bond prices. The leading indicator, the US 10-year Treasury yield, slumped to 3.75%, the lowest level since June 2023. In Asia, the 10-year Japanese government bond yield fell 14 basis points to a four-month low of 0.8%.

European major government bonds may face a similar pattern, with German bunds and UK gilt prices experiencing upside pressure.

Gold prices have risen close to an all-time high, as the precious metal is also viewed as a traditional haven asset. Gold futures at Comex rose 0.73% to $2,487 (€2275) per ounce, just 0.7% away from the all-time high recorded in July.

Conversely, Bitcoin has been sold off, reflecting its status as a riskier asset. The largest cryptocurrency has lost 18% since Friday, reaching $53,400 (€49,043) at 7:40 am CEST.