US futures moved little on Wall Street, in the aftermath of the umpteenth closure in the red of the US stock exchange. Yesterday the Dow Jones index lost 162.92 points (-0.49%), at 32,757.54; the S&P 500 was down 0.90% to 3,817.66 points, while the Nasdaq Composite was down 1.49% to 10,546.03.
US equity indices continued to price in the threat of a recession, in the US and globally, as hopes of a Christmas rally fade. In premarket, Dow Jones futures were up 0.17%, S&P 500 futures were essentially flat, while Nasdaq futures were down 0.21%.
“There is no Santa Claus in sight,” Louis Navellier, founder of investment firm Navellier & Associates, told CNBC.
“Fasten your seatbelts”, continued the expert, pointing out that “some would like to think that the bad news has already arrived, given that the Fed will not meet until February. Of course, we are not sinking, but certainly we are not recovering last week’s losses either ”.
And today there was also the Bank of Japan shock.
With what was its last act of 2022, the Bank of Japan led by Haruhiko Kuroda announced that it had left Japan’s borrowing cost unchanged at -0.1% but that it had also made a change to the YCC (Yield Curve Control), i.e. the yield curve control tool. In fact, the BoJ has increased the fluctuation range of Japanese government bond rates, from the previous range between -0.25% and 0.25% to the new band, between -0.5% and + 0.5%.
This means that the central bank will allow long-term rates to rise from 25 basis points (the previous limit set under the YCC policy) to 50 basis points, the limit announced today. The fear of a BOJ ready to abandon the ultra-accommodative monetary policy of recent years, in spite of the reassurances of Kuroda, who among other things has also strengthened QE-Quantitative easing today – has sent the markets into a tailspin, initially causing the decline in stocks and the flare-up in government bond rates.
Thus the analysts of Mps Capital Services:
“This morning, the surprise decision by the BoJ is amplifying the movement, with the long-term leg appearing to be the most penalized. All of this is translating into a steepening of the curves both in the Eurozone and in the USA”, wrote the analysts of MPS Capital Services in a note.
It should be noted that market sentiment is now showing some slight signs of improvement. US futures are moving little, and in Piazza Affari the Ftse Mib turned positive, in the wake of the buys that mainly involve banks, primarily UniCredit, Banco BPM and Bper.
In general, financials benefit from bets on an environment of higher interest rates worldwide, a situation which usually increases the profitability of banks, driving up interest margins.
On the forex market, the yen is the great protagonist.
MPS Capital Services analysts pointed out that “the BoJ’s move this morning led to a strong appreciation of the yen with the exchange rate against the euro trying to force the resistance area between 140.69 and 140.11 (static support and moving average respectively at 200 days)”.
The yen immediately jumped nearly 3% to JPY 133 against the US dollar following the Bank of Japan announcements, accelerating recent days’ recovery from 32-year lows. Now, at around 1.30pm GMT the yen continues to fly against the dollar, with the dollar-yen accelerating to the downside, losing more than 3% to JPY 132.59.
The euro is up against the dollar above the $1.06 threshold.
The upswing in US Treasury rates continues, also conditioned by the Bank of Japan’s move, with 10-year yields jumping over the 3.6% threshold and 2-year Treasury rates rising to 4.285%