Tokyo tanked as it led losses across Asia on Friday owing to a stronger yen and expectations for more Japanese rate hikes, and after disappointing data sparked a plunge on Wall Street and fuelled fresh fears of a US recession.
The optimism that greeted Federal Reserve boss Jerome Powell's indication on Wednesday that borrowing costs could be cut in September has given way to trepidation that the slowdown in the world's number one economy might be more pronounced than previously thought.
The central bank has for months been looking for confirmation that inflation is well on the way down and the labour market is softening, while at the same time trying to avoid a sharp plunge in business activity. It has largely been confident in achieving a "soft landing".
But news Thursday that the US factory sector shrunk faster than forecast in July -- and for the fourth consecutive month -- raised eyebrows.
That came as another report showed the private sector created far fewer jobs than expected in July -- and many fewer than in June.
The private sector added 122,000 jobs in July, down from June's revised 155,000 figure, while unemployment claims also spiked more than anticipated.
Focus is now on the release of the major jobs report due later Friday, which will give a clearer snapshot of the labour situation.
The news dealt a blow to investors, who are also dealing with a disappointing earnings season from Big Tech, a key driver of the global rally that has helped push many markets to multiple record highs this year.
US chip titan Intel became the latest bearer of bad news, warning it would slash more than 15 percent of its workforce -- about 18,000 jobs -- as it streamlines operations. The firm reported a loss of $1.6 billion in the recently ended quarter and said the third quarter would also disappoint.
Microsoft, Amazon, Tesla and Google-parent Alphabet have also fallen short of hopes, and while Apple beat forecasts, talk is now growing that the valuations of some of these market darlings may be too high and in need of a pullback.
All three main indexes tumbled in New York, with the Nasdaq more than two percent off.
And Asia fared just as poorly, with tech taking the brunt of the selling.
The Nikkei 225 tanked 5.8 percent -- its biggest drop since the start of the pandemic four years ago -- owing to a stronger yen, which hits Japan's key export sector.
The country's tech giants were also hammered as they took the lead from losses by their US counterparts, with chip titan Tokyo Electron losing 10 percent and Sony shedding more than six percent.
Daiwa Securities said in a note: "Following falls in New York stocks, the BoJ's additional rate hike, and the yen's further appreciation, market sentiment is rapidly cooling down."
Hong Kong and Sydney were off more than two percent, Seoul gave up more than three percent and Taipei shed more than four percent, with losses also in Shanghai, Mumbai, Bangkok, Wellington, Manila, Singapore and Jakarta.
London, Paris and Frankfurt were also well in the red.
Wednesday's decision by the Bank of Japan to hike interest rates for the second time in 17 years -- and talk of another to come -- strengthened the yen to as much as 148.51 per dollar, its best level since March.
That is just weeks after hitting nearly 126 at the start of July, its weakest in almost four decades.
The pound extended losses against the greenback, a day after the Bank of England cut its main interest rate for the first time since the Covid pandemic broke out in 2020.
Tokyo - Nikkei 225: DOWN 5.8 percent at 35,909.70 (close)
Hong Kong - Hang Seng Index: DOWN 2.1 percent at 16,945.51 (close)
Shanghai - Composite: DOWN 0.9 percent at 2,905.34 (close)
London - FTSE 100: DOWN 0.5 percent at 8,244.60
Dollar/yen: DOWN at 149.19 yen from 149.66 yen on Thursday
Euro/dollar: UP at $1.0805 from $1.0750
Pound/dollar: DOWN at $1.2723 from $1.2735
Euro/pound: UP at 84.96 pence from 84.71 pence
West Texas Intermediate: UP 1.2 percent at $77.19 per barrel
Brent North Sea Crude: UP 1.0 percent at $80.34 per barrel
New York - Dow: DOWN 1.2 percent at 40,347.97 (close)
