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Business

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




(Bloomberg) — Treasury yields rose and U.S. stock futures fell after the Bank of Japan mimicked its central bank peers with a sudden hawkish move that lifted the yen to a four-month high and raised expectations of further policy tightening.

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However, European stocks pared some of their early losses, boosted by gains in banking stocks, while US stock futures traded with only a slightly weaker bias, after four losing sessions for the underlying indexes.

In the bond markets, the 10-year government yield rose by 8 basis points, while bonds from Australia to Germany also sold off. Analysts expect more losses to come as Japanese investors, big players in US and European debt, now have more incentive to bring money home.

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

“Tighter BoJ policy would remove one of the last global anchors that has helped keep borrowing costs at low levels more broadly,”[ads1]; Deutsche Bank analysts told clients, noting the BOJ move had come as markets were “already falling” from the ECB and the Fed’s hawkish cabinet. last week.

The yen strengthened to as much as 133.21 against the dollar, up more than 3% at one point, while Japan’s 10-year yield rose to its highest since 2015. Japanese bank shares celebrated the BOJ move, gaining as much as 5%.

Until now, the BOJ has been an outlier among central banks, most of which have tightened policy rapidly. Japan’s monetary authority adjusted its yield curve control program to allow 10-year borrowing costs to rise to around 0.5%, against the previous upper limit of 0.25%, rejecting forecasts for no change at the policy meeting.

Read more: BOJ Blindsides Traders to Replay 1989 Christmas Day Shock

The yen’s rise beat the dollar which fell against a basket of currencies, while the yen also posted notable gains against currencies such as the euro and Australian dollar.

RBC strategist Adam Cole said the moves had been fueled by positioning, with most investors still longing for the dollar against the yen ahead of the BOJ meeting, meaning “covering those yen shorts could drive the yen even higher.”

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

Important events this week:

  • Housing in the US starts on Tuesday

  • EIA crude oil report, Wednesday

  • Existing home sales in the US, consumer confidence in the US Conference Board, Wednesday

  • US GDP, Initial Unemployment Claims, US Conf. The board’s leading index, Thursday

  • US Consumer Income, New Home Sales, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment, Friday

Some of the most important moves in markets from 07:30 Tokyo time:

Stock

  • The Stoxx Europe 600 was down 0.5% at 10:20 a.m. London time

  • S&P 500 futures fell 0.1 percent

  • Nasdaq 100 futures fell 0.3 percent

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific index fell 0.2 percent

  • MSCI Emerging Markets index fell 0.9%

Currencies

  • The Bloomberg Dollar Spot index fell 0.6 percent

  • The euro rose 0.2% to $1.0627

  • The Japanese yen rose 3.2% to 132.52 per dollar

  • The offshore yuan rose 0.2% to 6.9688 per dollar

  • The British pound was little changed at $1.2140

Cryptocurrencies

  • Bitcoin rose 1.2% to $16,792.89

  • Ether rose 2.8% to $1,208.73

Bonds

  • The yield on 10-year government bonds rose eight basis points to 3.66%

  • Germany’s 10-year yield rose eight basis points to 2.28%

  • UK 10-year yields rose eight basis points to 3.58%

Raw materials

  • Brent crude rose 0.8% to $80.42 a barrel

  • Spot gold rose 1.1% to $1,806.57 an ounce

This story was produced with assistance from Bloomberg Automation.

–With help from Jason Scott and Tassia Sipahutar.

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©2022 Bloomberg LP



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