Stocks fall as market expects Bank of Japan to end negative interest rates
European stocks and bond yields fell on Thursday as traders speculated that the Bank of Japan could soon reverse its negative interest rate policy. Wall Street is also feeling the heat as expectations for the Federal Reserve to cut interest rates next year continue to rise. All eyes are now on the U.S. jobs report, which is set to be released on Friday.
The market has been watching closely as former hawkish Fed officials have suggested that the central bank has already raised interest rates sufficiently. Futures traders have now begun to anticipate a strong possibility that the Fed will start cutting interest rates as early as March next year. This has led to a surge in the S&P 500 and Nasdaq 100 index, which rose nearly 9% and saw considerable growth in November, respectively.
The yen rose 1% against the U.S. dollar, Japan’s 10-year government bond yield surged 13 basis points, and the U.S. dollar fell for the first time in four days. This resulted in the Stoxx Europe 600 index falling by 0.2%, particularly affecting interest rate-sensitive industries such as real estate companies and banks.
Deutsche Bank’s Jim Reid commented on the market’s sharp reversal in tone, attributing it to comments from Bank of Japan officials that have raised expectations of the possibility of the central bank ending its negative interest rate policy.
The upcoming U.S. employment report on Friday is expected to further impact market expectations, especially ahead of the Federal Reserve’s final meeting of the year next week. While no changes to the federal funds rate target are expected, the release of quarterly forecasts could potentially change market dynamics.
Hedge fund manager Bill Ackman, who recently closed short bond positions and warned of the risks of an economic collapse if interest rates are not cut soon, and a shift in the oil market, with prices stabilizing after OPEC announced plans to curb production until 2024, are also causing concerns among investors.
With uncertainties looming in the market, caution is advised as investors may face disappointments amid the rapid changes in monetary policy and oil supply dynamics.