Japan’s Nikkei index fell for a third day on Tuesday, amid risks to growth from aggressive U.S. monetary tightening and strict COVID-19 curbs in China, but ended off its lows as bargain hunting emerged and U.S. stock futures pointed to a rebound.

The Nikkei closed 1.32% lower at 26,629.86, but after earlier sinking as much as 2.19%, the lowest since May 19.

The broader Topix slid 1.19% to 1,878.45.

“There’s a stock feeling underpinning the market that stocks have gotten cheap, and we’re seeing some bargain hunting,” said a market participant at a domestic trust bank.
Still, sentiment remains fragile.

Beijing is testing millions to stem the spread from a cluster infection at a 24-hour bar, with China’s vice premier saying COVID prevention and control needs to be strengthened. Shanghai is only just emerging from a crippling two-month-long lockdown.

“The reimposition of restrictions in Beijing, Shanghai and other places is sparking worries of new supply chain disruptions,” said Kazuo Kamitani, a strategist at Nomura Securities.

Meanwhile, investors are seen bracing for 150 basis points of rate hikes over two meetings by the Federal Open Market Committee — one that ends on Wednesday and another in the following month. This is after data on Friday showed U.S. consumer price inflation ran red hot.

“Right before the FOMC is a very difficult backdrop for growth stocks,” said a market participant at a domestic securities company.

Wall Street confirmed a bear market overnight, with the S&P 500 dropping 3.88% on the day and down more than 20% from its most recent closing high. The tech-heavy Nasdaq tumbled 4.6%.

Tech was among the Nikkei’s worst performing sectors, down 1.95%. Healthcare dropped 2.18%, while real estate slumped the most, down 2.97%.

Even financials gave up early gains on higher bond yields to end 0.14% lower.

Of the Nikkei’s 225 components, 171 fell versus 52 that rose and two that were flat.

Chip-making equipment maker Tokyo Electron sank 2.84%, and was the Nikkei’s biggest drag, shaving off 36 index points.

Startup investor SoftBank Group knocked another 28 points off the benchmark, with a 2.56% decline.

Travel-related stocks took a hit, with airlines ANA Holdings off 3.61% and Japan Airlines down 2.88%.

Reuters