January 27, 2023

BOJ Yield Pivot Rips Across Global Stocks, Bonds: Markets Wrap Up

(Bloomberg) — Treasury yields rose and U.S. stock futures were seen in brisk trade after the Bank of Japan’s surprise hawkish move, the yen rose and raised expectations that it will join other countries in raising interest rates.

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Stock futures on the S&P 500 and Nasdaq were slightly lower after early declines, as investors turned their attention to this week’s housing and jobs data that confirmed the U.S. economy is losing steam, allowing the Federal Reserve to make way in its rate-hike campaign. . European stocks also pared early declines amid gains in banking stocks.

The 10-year Treasury rose 8 basis points, while bonds from Australia to Germany also sold. Analysts expect more losses to come as Japanese investors, who are major players in U.S. and European debt, have more incentive to bring money home.

Many economists now expect the BOJ to raise interest rates next year, joining the Federal Reserve, European Central Bank and others after a decade of extraordinary stimulus.

“Tighter BoJ policy will remove one of the last global anchors helping to keep borrowing costs broadly low,” Deutsche Bank analysts told clients, adding that the BOJ move comes as markets are “already reeling” from the hawks of the ECB and Fed. Last week.

The yen strengthened more than 3% against the dollar, the most since August, while Japan’s 10-year yield hit its highest since 2003.

Until now, the BOJ has been an outlet for central banks, most of which have been quick to tighten policy. The Monetary Authority of Japan adjusted its yield curve control program, allowing 10-year borrowing costs to rise to 0.5%, against the previous 0.25% ceiling, leaving it unchanged at its policy meeting.

Also read: BOJ Blindsides Traders to Echo Christmas Day Shock of 1989

The yen’s surge pushed the dollar, which fell against a basket of currencies, while the yen posted significant gains against currencies such as the euro and Australian dollar.

RBC strategist Adam Cole said ahead of the BOJ meeting that most investors were still holding the yen against the dollar, meaning “closing these yen shorts would mean the yen would be even higher.”

In commodity markets, a weaker dollar lifted gold prices, while West Texas Intermediate crude futures rose above $75 a barrel.

Highlights of this week:

  • US housing starts, Tuesday

  • EIA crude oil inventories report, Wednesday

  • Existing home sales in the US, American Conference Board Consumer Confidence, Wednesday

  • US GDP, Initial Unemployment Claims, US Conf. Board leading index, Thursday

  • US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Fri

Some key movements in the markets:

Shares

  • S&P 500 futures were down 0.3% at 8:25 a.m. New York time

  • Nasdaq 100 futures fell 0.6%

  • The future of the Dow Jones Industrial Average was little changed

  • The Stoxx Europe 600 fell 0.2%

  • The MSCI World Index was little changed

Coins

  • The Bloomberg Dollar Spot Index fell 0.5%

  • The euro was little changed at $1.0599

  • The British pound fell 0.2% to $1.2120

  • The Japanese yen rose 3.1% to 132.72 per dollar

Cryptocurrencies

  • Bitcoin rose 1.4% to $16,817.81

  • Ether rose 3.2% to $1,212.98

Bonds

  • The yield on 10-year Treasuries rose eight basis points to 3.67%.

  • Germany’s 10-year yield rose eight basis points to 2.29%

  • Britain’s 10-year yield rose eight basis points to 3.58%

materials

  • West Texas Intermediate crude was up 1.1% at $76.03 a barrel.

  • Gold futures were up 0.7% at $1,809.50 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Jason Scott and Tasia Sibahuder.

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