Nikkei set to drop sharply on U.S. fiscal concerns

Wed Nov 7, 2012 6:14pm EST

TOKYO, Nov 8 (Reuters) - Japan's Nikkei average is expected
to open lower on Thursday, tracking hefty losses on Wall Street
as investors worried that U.S. fiscal woes confronting President
Barack Obama after his re-election could trigger a new
recession. 
    The Nikkei was likely to trade between 8,800 and
8,950, strategists said, while Nikkei futures in Chicago closed at 8,850 on Wednesday, down 1.2 percent from the
Osaka close of 8,960.
    "Due to U.S. stock weakness and the strengthening yen,
today's tone will be weak," said Hiroichi Nishi, equity general
manager at SMBC Nikko Securities.
    "Some sectors will be hit harder than others by the yen's
strength, but the overall trend today is minus."
    Overnight, the Dow Jones industrial average lost more
than 300 points in a sell-off that drove all major U.S. stock
indices down more than 2 percent in the wake of the presidential
election as investors' focus shifted to the looming 'fiscal
cliff' debate and the European Commission's forecast that the
euro zone economy would barely grow next year.
    Investors fear the 'fiscal cliff' -- a mix of tax increases
and spending cuts due to extract some $600 billion from the U.S.
economy in the new year -- could push the United States and
possibly the global economy back into recession.
    Fitch Ratings, which has a AAA credit rating on the United
States with a negative outlook, said failure to avoid going over
the fiscal cliff and raising the debt ceiling "would likely
result in a rating downgrade in 2013."   
    The Nikkei ended flat at 8,972.89 on Wednesday, holding
below its five-day moving average at 8,990.71, while the broader
Topix index added 0.1 percent to 745.71.
    The benchmark Nikkei is up 6.1 percent this year, trailing a
10.9 percent rise in the U.S. S&P 500 and a 10.8 percent
gain in the pan-European STOXX Europe 600 index.
    Still, Japanese equities are slightly more expensive than
their European counterparts, with a 12-month forward
price-to-earning ratio of 11.3 versus STOXX Europe 600's 11,
data from Thomson Reuters Datastream showed. The S&P 500 carries
a 12-month forward P/E of 12.6.
        
> Wall St sinks after election as 'fiscal cliff' eyed      
> Dollar up after US election, but fiscal worries dominate 
> Treasuries jump as Obama win drives monetary policy view 
> Gold up but off highs, post-election fiscal crisis eyed 
> Oil down about 4 pct, fiscal cliff looms after U.S. vote 
    
    STOCKS TO WATCH
    --SONY CORP 
    Sony's PlayStation 3 has received a certification of quality
from a Chinese safety standards body, sparking speculation that
China will end a decade-old ban on home game consoles.
 
    --MITSUBISHI CORP 
    Mitsubishi Corp, Japan's biggest trading house, is almost
done for now with investing in natural resources, after having
spent more than $12.5 billion on copper, gas and coal assets in
the past three years, its president said on Wednesday.
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