Programming note: the MMW will be off between the 23rd of December and the 2nd of January, resuming publication on January 3rd 2023. Equities swing between gains and losses in a volatile session on Tuesday before edging higher as investors assessed a decision by the Bank of Japan to increase its yield trading band.
Japan
In a surprise decision on Tuesday, the Bank of Japan announced an increase to the targeting trading band for 10-year bond yields, increasing to 0.5% from 0.25% previously while keeping both short and longer-term interest rates unchanged. The decision is seen as the BOJ now laying the groundwork to exit from a decade of extraordinary stimulus policy, joining other major central banks in tightening policy. In reaction, the 10-year JGB yield climbed 14.4 basis points to 0.40% from 0.25% previously while the USDJPY slumped -3.80% to 131.71 as the Yen surged. Prior to the announcement, the Yen had already strengthened 8.82% from its October lows signalling investors had positioned for the view it was doubtful the BOJ could remain eternally dovish in the face of rising inflation. Deutsche Bank analysts noted “Tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly.”
United States
The reaction to the BOJ resulted in global yields spiking and equity futures falling in the initial aftermath before equities reversed losses with hawkish monetary policy priced in globally which investors continue to bet will need to be reversed in the latter half of 2023 as growth slows. The S&P 500 gained 0.10% along with the Down Jones 0.28%, Nasdaq Composite 0.01% and Russell 2000 0.32% with the VIX closing -4.19% lower at 21.48 after initially rising 4.33%. Economic data on Tuesday showed the US housing market continues to cool with building permits for November decreasing more than forecast to 1.342m vs 1.485m forecast, and housing starts decreasing -0.5% over the month.
Europe
European markets closed lower on Tuesday although pared larger losses following the BOJ decision. The Euro Stoxx 600 intiially declined as much as -1% before finishing -0.40% lower along with the DAX -0.42% and CAC -0.35% while the FTSE100 edged 0.13% higher. The consumer confidence survey results for December showed a decline to -22% as forecast, a slight improvement from the -23.9 in November, showing an improvement in consumer confidence although remains deeply in pessimistic territory as as consumers come to terms with a likely upcoming economic recession gripping the region. Bond yields in the region advanced following the news from BoJ, with the German and British 10-year bond yield rising 10 and 9 basis points to 2.30% and 3.60% respectively.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open higher with ASX futures up 58 points or 0.83% to 7,025. The ASX 200 dropped -1.54% on Tuesday after the BoJ bond yield announcement sent ripples across the region. Information technology plummeted -4.38%, real estate -3.79% and consumer discretionary -3.53%. The best performing stock was The Steadfast Group rising 2.06%, while Johns Lying Group was the biggest laggard sinking -12.33% after the COO Lindsay Barber offloaded 4 million shares representing 31% of their stake although said they have no more planned sales in the next 12 months. Meanwhile the minutes from the RBAs previous meeting revealed the bank considered both pausing interest rates or increasing by 0.5% at the December meeting suggesting a high degree of economic uncertainty. The ANZ-Roy Morgan Australian Consumer confidence survey showed a decline to 82.5, well below the neutral level of 100 weighed by increasing interest rates and the cost of living. A survey of business confidence for the month of December also showed a decrease to -70.2 from -57.1 previously highlighting the impact of previous RBA tightening is being felt, with the full effects yet to flow through.
Commodities
The price of oil rose overnight with WTI and Brent crude rising 0.86%and 0.01% to $76.03 and $79.75 respectively. In precious metals, spot gold firmed 1.74% to $1,818 and spot silver jumped 5.38% to $24.22. Industrial metals rose with copper up 0.59% to US$381 and SGX Iron Ore rose 1.62% to US$109.31.
Economic Data:
- Westpac Leading Index (MoM Nov) 10:30
- German GfK Consumer Confidence (MoM Jan) 18:00
- Canadian Inflation Rate (MoM Nov) 00:30
- US CB Consumer Confidence (MoM Dec) 02:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
