Risk aversion is bound to pick up and global equities may see some selloffs
On a Friday morning in July 2022, Asian markets had begun to breathe easier — reassured by Federal Reserve officials who spoke of soft landings and manageable inflation — when news arrived from Nara, Japan, that former Prime Minister Shinzo Abe had been shot while campaigning. The event was a reminder, as markets have always known but sometimes forget, that the world does not pause for economic forecasts. What had been a story about central bank credibility became, in an instant, a story about uncertainty itself — the kind no model fully accounts for.
- Asian stocks were climbing on Fed optimism, with South Korea's KOSPI heading for its best week in five months, when the shooting of Shinzo Abe shattered the session's calm.
- The yen surged and the dollar fell 0.4% against it within moments of the news — a reflexive flight to safety that stripped the Nikkei of most of its earlier gains.
- Strategists warned that risk aversion would deepen as trading moved into London and New York, with European futures flat and S&P 500 contracts already turning negative.
- The Fed's own message — delivered by Waller and Bullard, projecting a credible path of rate hikes toward a soft landing — was suddenly competing with a far less legible signal from the streets of Nara.
- All eyes shifted to the afternoon's U.S. non-farm payroll release, a number that could either confirm resilience or hand the Fed reason to tighten further, in a market no longer sure how to read good news.
The morning had belonged to the Federal Reserve. Overnight, Governor Christopher Waller and St. Louis Fed President James Bullard had offered markets something they had been starved of — clarity. Waller dismissed recession fears as overblown; Bullard raised the possibility of a genuine soft landing. Rate hikes of 75 basis points in July and 50 in September were expected, with larger moves possible if inflation held firm. Traders responded with relief. South Korea's KOSPI rose 0.8%, on pace for its strongest week in five months, and the broader Asia-Pacific index outside Japan edged up 0.3%.
Then came the news from Nara. Former Prime Minister Shinzo Abe had been shot while campaigning. The market's response was immediate: the yen surged, the dollar fell 0.4% against it, and Japan's Nikkei — which had climbed to a ten-day high — retreated sharply, closing up just 0.5%. Saxo Capital Markets strategist Charu Chanana noted that risk aversion would almost certainly intensify as the trading day moved westward. European futures went flat. S&P 500 e-mini contracts turned negative, down 0.4%.
The shooting had reordered the day's priorities. Later in the session, U.S. non-farm payroll data for May would arrive — economists expected 268,000 jobs added — but analysts at ING cautioned that the market's reaction to any surprise was genuinely hard to predict. A strong number might signal more Fed tightening ahead; it might simply be taken as good news. Markets, they noted, don't always reason the way economists hope.
Elsewhere, sterling steadied at $1.201 after Boris Johnson's resignation as British Prime Minister, while the euro remained near a 20-year low at $1.0149. Oil prices oscillated between recession fears and supply concerns, with Brent crude up modestly at $105.26. Bitcoin rose 1.7% to $22,200, its highest in over three weeks, and was on track for its best week since early May. The day had become a portrait of markets caught between the reassurance of institutional guidance and the irreducible unpredictability of the world beyond the trading floor.
The morning's optimism in Asian markets was built on a simple idea: maybe the Federal Reserve had finally found its footing. Overnight, officials from the central bank had offered reassuring words about the economy's prospects, and traders responded by pushing stocks higher across the region. South Korea's KOSPI index led the way, climbing 0.8% and positioning itself for its strongest week in five months. The broader measure of Asia-Pacific shares outside Japan was up 0.3%, having actually pared back even larger gains from earlier in the session.
Then, around midday, the news arrived: former Japanese Prime Minister Shinzo Abe had been shot while campaigning in the city of Nara. The market's reaction was immediate and visceral. The yen, long the refuge of nervous investors, surged as traders abandoned riskier positions. The dollar fell as much as 0.4% against the Japanese currency in what analysts called a knee-jerk response. Japan's Nikkei index, which had climbed to a ten-day high earlier, suddenly retreated, ending the session up just 0.5% instead of the larger gains it had posted before the shooting.
Charu Chanana, a market strategist at Saxo Capital Markets, captured the shift in sentiment plainly: while details remained sparse, she said, risk aversion would almost certainly intensify as trading moved westward into London and then New York. The shooting had injected uncertainty into a market that had been running on the fuel of Fed reassurance. Futures markets reflected the anxiety—European indices were flat, and U.S. stock futures had turned negative, with S&P 500 e-mini contracts down 0.4%.
The Fed's message, delivered overnight by Governor Christopher Waller and St. Louis Fed President James Bullard, had been the day's original story. Waller dismissed recession fears as overblown, while Bullard suggested there was a reasonable chance the economy could achieve a soft landing—growth without a downturn. The central bank was expected to raise rates by 75 basis points in July and 50 basis points in September, Waller indicated, though he left the door open for larger increases if inflation proved stubborn. This was the kind of clarity markets had been craving, a sense that the Fed had a plan and believed it could work.
But the Abe shooting had scrambled the day's narrative. The real test of market sentiment would come later, when the U.S. released its non-farm payroll figures for May. Economists expected 268,000 jobs to have been added, a figure that would suggest the labor market remained resilient. Yet as analysts at ING noted, the market's reaction to any deviation from that number was genuinely uncertain. A stronger jobs report could be read as evidence that the Fed still had more work to do, pushing rates higher and raising the risk of a harder economic landing. Or it could simply be taken at face value as good news. Markets, they observed, don't always think as deeply as economists do.
Elsewhere, sterling had steadied at $1.201 after Boris Johnson announced his resignation as British Prime Minister, erasing the overnight gains the currency had posted on that news. The euro remained pinned near its 20-year low at $1.0149, a reflection of Europe's own economic troubles. Oil prices swung between gains and losses as traders weighed recession fears against concerns about tight global supplies. Brent crude was up 0.55% to $105.26 per barrel, while U.S. crude gained 0.17% to $102.90. Bitcoin, meanwhile, had jumped 1.7% to $22,200, its highest level in more than three weeks, and was on pace for its best week since early May, up nearly 15% for the period.
The day had become a study in competing forces: the Fed's attempt to project control and competence against the market's reflexive fear of the unexpected. The shooting in Nara had reminded traders that the world beyond spreadsheets and interest rate forecasts remained unpredictable, and that sometimes the safest move was simply to step back and wait.
Notable Quotes
While the details are still scanty, risk aversion is bound to pick up and global equities may see some selloffs— Charu Chanana, market strategist at Saxo Capital Markets
Recession fears are overblown, and there is a good chance of a soft landing for the economy— Federal Reserve officials Christopher Waller and James Bullard
The Hearth Conversation Another angle on the story
Why did the shooting in Nara matter so much to traders in Hong Kong and Seoul? It happened in Japan, after all.
Because it was unexpected, and markets hate uncertainty. When something violent and political happens, investors instinctively move money into safe places—the yen, gold, government bonds. That's not rational calculation; it's fear.
But the Fed had just said things were going to be okay. Didn't that matter more?
It did, until it didn't. The Fed's words were about the future, about what they planned to do. The shooting was immediate, real, happening right then. One is a forecast; the other is a fact.
So the market was saying the Fed can't control everything?
Exactly. You can have the best monetary policy in the world, but if political violence erupts, if supply chains break, if wars start—none of that changes because Jerome Powell made a speech.
What happens when the jobs number comes out later?
That's the real test. If it's strong, some traders will think the Fed needs to raise rates even more aggressively. Others will see it as proof the economy is fine. The same number could mean two completely different things depending on what people are afraid of that day.