21 Dec

The US Real Estate Market is showing weakness. Bank of Japan aims to normalize monetary policy

December 21, 2022

By JustMarkets

The Bank of Japan alarmed investors yesterday after it announced it would allow Japan’s 10-year government bond yields to rise 50 basis points or 0.5%. That’s above the previous limit of 25 basis points and signals the Bank of Japan’s first move to tighten monetary policy by expanding its target range for bond yields. This is a forced measure of policy tightening due to a lack of demand and liquidity in the country’s debt market, as well as capital outflows from Japan. Japan’s rising government bond yields led to rising global bond yields, including Treasuries, which in turn led to falling indices. Nevertheless, the growth of energy companies’ shares due to a jump in oil prices helped stabilize the stock market as a whole. At the close of the stock exchange, the Dow Jones Index (US30) gained 0.28%, and the S&P 500 Index (US500) added 0.10%. The Technology Index NASDAQ (US100) closed at its opening level.

In the US, housing construction exceeded expectations in November. Still, the number of permits, an indicator of future project activity, fell to an 18-month low, adding to fears of further activity decline.

European stock markets traded flat yesterday. Germany’s DAX (DE30) decreased by 0.42%, France’s CAC 40 (FR40) lost 0.35%, Spain’s IBEX 35 (ES35) added 0.59%, and the British FTSE 100 (UK100) closed Tuesday at plus 0.13%.

European stocks fell on Tuesday due to rate-sensitive tech and industrial stocks after the Bank of Japan (BOJ) shocked global markets with a surprise policy change. While this was a minor policy adjustment, it was the first adjustment by the BOJ in a very long time. That’s why the market reaction has been substantial.

Gold and silver continue to rise amid a decline in US government bonds. Gold has an inverse correlation to the dollar index and government bonds, and that’s why the “yellow metal” was falling against a background of tighter monetary policy from the Fed. But now the Fed is getting closer to the end of the cycle, so more and more investors are moving into gold amid the approaching recession.

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Oil prices ended higher Tuesday as a worsening forecast for a major storm in the US raised fears that millions of Americans could limit their travel plans during the New Year holiday. Oil prices were supported by a weaker dollar and a US oil restocking plan, but gains were limited by uncertainty over the rising number of COVID-19 cases in China.

TC Energy Corp. submitted its plan to US regulators to restart the Keystone pipeline nearly two weeks after the pipeline rupture that led to the largest oil spill in the United States in nine years.

Asian markets were mostly down yesterday. Japan’s Nikkei 225м(JP225) decreased by 2.46%, China’s FTSE China A50 (CHA50) lost 2.41%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.33%, India’s NIFTY 50 (IND50) fell by 0.19%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday down by 1.54%.

Tighter Bank of Japan policy will remove one of the last global anchors that helped keep borrowing costs low more broadly. Many economists now expect the Bank of Japan to raise interest rates next year, joining the Fed, ECB, and others after a decade of extraordinary stimulus.

S&P 500 (F) (US500) 3,821.62 +3.96 (+0.10%)

Dow Jones (US30) 32,849.74 +92.20 (+0.28%)

DAX (DE40) 13,884.66 −58.21 (−0.42%)

FTSE 100 (UK100) 7,370.62 +9.31 (+0.13%)

USD Index 104.00 -0.72 (-0.68%)

Important events for today:
  • – Canada Consumer Price Index (m/m) at 15:30 (GMT+2);
  • – US CB Consumer Confidence (m/m) at 17:00 (GMT+2);
  • – US Existing Home Sales (m/m) at 17:00 (GMT+2);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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