Stocks, Treasuries Drop as Japan Rattles Markets: Markets Wrap

(Bloomberg) — Stocks fell and bond yields rose amid speculation that the Bank of Japan will soon scrap the world’s last negative interest-rate regime.

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The yen strengthened 1% against the dollar and Japan’s 10-year yield jumped as much as 13 basis points. Investors are speculating that higher rates could come earlier than expected following comments from BOJ Governor Kazuo Ueda on more challenging policy ahead and a weak auction of long-term debt.

Global markets moved in response, with European stocks opening lower. The yield on 10-year US Treasuries added seven basis points and the dollar fell for the first time in four days.

“When it comes to the last 24 hours, markets have seen a sharp reversal in tone, with bond yields seeing a significant increase overnight and equities losing ground,” said Jim Reid at Deutsche Bank AG.

“The main catalyst for this have been comments from Bank of Japan officials, which have suddenly seen investors ramp up the chances that the BoJ could bring an end to their negative interest rate policy.”

Overnight-indexed swaps at one point on Thursday showed an almost 45% chance that the BOJ would end the policy this month.

Traders are also focused on Friday’s US jobs report after private payrolls data that fell short of estimates in a sign of softening in the employment market.

Fed policymakers meet next week for the last time in 2023. While no change is expected in their target for the federal funds rate, they are scheduled to release quarterly forecasts that could alter market-implied expectations. Those bets have been gravitating toward more easing next year in response to weaker-than-forecast economic data.

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“Inflation fears are melting,” said Prashant Newnaha, a rates strategist at TD Securities. “Central banks believe they have clearly done enough and may need to cut, otherwise real rates may be too high and restrictive.”

Oil stabilized after a five-day run of losses on signs that global supplies are eclipsing demand despite plans by OPEC+ to rein in its production into 2024. A key gauge for prices of raw materials earlier tumbled to the lowest level since August 2021.

Elsewhere, gold extended Wednesday’s gains, while bitcoin traded just below $44,000, a level not seen since June last year.

Key events this week:

• Eurozone GDP, Thursday

• Germany industrial production, Thursday

• US wholesale inventories, initial jobless claims, Thursday

• Germany CPI, Friday

• Japan household spending, GDP, Friday

• Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday

• US jobs report, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.2% as of 8:03 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index fell 0.4%

• The MSCI Emerging Markets Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.1% to $1.0778

• The Japanese yen rose 1.1% to 145.64 per dollar

• The offshore yuan rose 0.2% to 7.1609 per dollar

• The British pound rose 0.2% to $1.2581

Cryptocurrencies

• Bitcoin was little changed at $43,828.74

• Ether rose 0.6% to $2,260.95

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.16%

• Germany’s 10-year yield advanced two basis points to 2.22%

• Britain’s 10-year yield advanced six basis points to 4.00%

Commodities

• Brent crude rose 0.9% to $74.94 a barrel

• Spot gold rose 0.2% to $2,029.03 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rita Nazareth, Jing Jin and Yumi Teso.

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