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Rates jump amid BoJ policy shock; Wall Street bounces off session low

Japanese yen notes

Global bond yields, particularly in the Asian markets, jumped on the Bank of Japan’s decision to double its 10-year bond yield cap to 0.5% from 0.25% on Tuesday, causing a surge in the Japanese yen, and sending the other Asian currencies and stocks down, while pressuring the US dollar.

However, Wall Street was resilient after five-days of consecutive falls, as equities may have been oversold. The price action could suggest that US stocks are still on track for a Christmas rally. But risks remain, and the Bank of Japan-induced sell-off in global bonds may continue to send jitters to risk assets.

On the other hand, a softened US dollar lifted commodity prices, including gold and oil, but natural gas prices continued to slump after EU members agreed on a “dynamic” cap on the price. However, it's unknown how effective the price cap will be amid the cold winter.  

  • All three benchmarks bounced session lows and finished higher. 7 out of 11 sectors in the S&P 500 rose, with energy leading gains, up 1.5%. Consumer discretionary was the laggard, down 1.1% due to an accelerating slump in Tesla shares. Meta Platform’s stock outperformed major big techs, up 2.3%.

  • Tesla shares accelerate their fall, down 8%, to below 140, a fresh year-low, a day after Elon Musk was voted out as Twitter’s CEO by users. However, the Tesla boss posted on Twitter that “there is no successor”.

  • The Japanese yen soared 3.8% against the US dollar, with USD/JPY tumbling more than 500 points to just above 131.70, the lowest seen in August. The BoJ’s decision to ease its YCC control may mark an end of its ultra-loss monetary policy and cause a 15 basis point jump in the Japanese 10-year bond yield.

  • Gold futures jumped as risk-off sentiment boosted haven assets. The bond market’s symmetric risk sparked a surge in demand for precious metals. But gold is in a bearish divergence move with some major indications from a technical perspective.

  • Crude oil extended gains for the second day, as Saudi Arabia’s energy minister denied the critics for actions to reduce output in a news interview. US lawmakers also face challenges to passing sales of the US SPR, where the amount of oil reserve dropped to 380 million, the lowest level since 1984.

  • Asian equity futures point to a higher open in both ASX and HKEX but a dip in Nikkei 225 as the sell-off in the Japanese bonds sank Japanese stock markets. ASX futures were up 0.83%, Nikkei 225 futures fell 0.75% and Hang Seng Index futures rose 0.12%. 

 

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