US stocks are attempting to snap a four-day losing streak even as hopes for a Santa Claus rally fade away. The BOJ’s yield pivot sent the dollar tumbling which gave all risky assets a little jingle. Pessimism for equities remains as earnings and credit risks remain widely in place.
The Bank of Japan stunned markets with a tweak to its yield curve policy. No one was expecting this to happen before Governor Kuroda term ends in April. Japan’s ultra-easy policy is going away a lot sooner than most traders were expecting. The BOJ is signaling that they can’t keep JGBs at these low levels and this is triggering a sell-off in global bond markets. The BOJ has stubbornly held onto this ultra-easy policy a lot longer than it should have.
The BOJ widened the yield curve control band to plus and minus 0.5 percentage points. The decision to double its cap should improve market functionality and give the BOJ options for a massive policy shift before Kuroda’s term ends. The decision to increase their bond purchases is also helping free up cash as investors prepare to test the upper boundaries of the new range.
Odds for a BOJ rate hike at the January meeting are now at 22.3%.
The housing market continues to get beat up as surging borrowing costs, weaker demand, and seasonality weigh on housing starts and building permits. Housing starts fell 0.5% last month, while applications to build tumbled 11.2%. One-family homes plunged 7.1%, which is the worst level since 2020. The housing market isn’t quite ready to stabilize but hopefully, that will happen over the next couple of quarters.
Bitcoin is rallying as the dollar tumbles following the Bank of Japan yield pivot. Given the reaction across other asset classes, bitcoin’s rally is somewhat unimpressive as crypto traders continue to remain in wait-and-see mode over what will be the next big crypto domino to fall or if we get any clearer guidance over the regulatory front.
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