Beginning the full final trading week of 2022 with a shaky start on Asian stock markets, the possibility of higher interest rate increases in 2019 dampened holiday optimism.
Rate increases were announced by the European Central Bank and the U.S. Federal Reserve last week, and there is even growing talk that the Bank of Japan, which gathers on Monday and Tuesday, may be considering a change from its current ultra-dovish attitude.
The yen was the biggest performer in otherwise sedate currency activity, rising around 0.4% to 136.20 each dollar as Japan’s Nikkei (.N225) lost 1.1%. The largest MSCI index of Asia-Pacific stocks not listed in Japan (.MIAPJ0000PUS) decreased by 0.4%.
Next year, Japan may explore changing the 2% inflation target that the governments and central bank agreed upon, according to different sources acquainted with the situation. The perspective adjustment was originally reported by the news agency Kyodo.
Chief Cabinet Secretary Hirokazu Matsuno said that there was no truth to the Kyodo news that the government was planning to change the inflation pact.
Rodrigo Catril, a strategist at the National Australia Bank, said this in Sydney: “Where there is smoke, there will inevitably be fire.”
He added, this kind of news supports the idea that the government will allow the BOJ to adopt a more flexible strategy and that part of the yen’s extreme undervaluation may be reversible.
The difference between rising U.S. rates and stable Japanese rates has been the key factor in the yen’s 15% loss against the dollar this year, making it the worst-performing G10 currency.
Japanese 5-year government bond yields reached a level that is almost eight years high.
Despite the Fed predicting further rate hikes in the future, U.S. rates remained stable last week due to traders’ concerns that interest rates are now too high and will start to harm economic growth. The yield on ten-year Treasury notes was 3.5204%.
Last week, the S&P 500 (.SPX) fell 2%. It has failed multiple times to persistently trade above its 200-day average line and is down 20% for the year.
S&P 500 futures increased by 0.1%. Futures in Europe increased by 0.2%. An unusually hawkish tone from the ECB surprised the stock market and the bond market in Europe.
The mood isn’t being helped much by softening economic data coming into the year’s conclusion, and markets are left wondering where to search for the upbeat feeling that has propelled a rally in U.S. equities in the final two weeks of December 11 occasions in the previous 15 years.
AMP Capital strategist and expert Shane Oliver claimed the Santa rally typically begins in the middle of December and is supported by holiday cheer, confidence for the coming year, the investment of any bonus, low volume, and the absence of capital raisings at this season of the year.
However, he continued, it has a tendency to be weaker or less dependable in years when the market plunges year to date.
Surveys released this week showed economic activity in Europe, Japan, and the United States declined in December, maintaining demand for the safe-haven greenback and halting euro gains.
The euro last traded around $1.0600, but last week it reached a six-month peak of $1.0737.
China’s equity markets have struggled to sustain a surge sparked by loosening COVID rules, and business morale has fallen to its lowest level since the World Economic Survey started collecting statistics in January 2013.
The Hang Seng index (.HSI) dropped 0.5%.
Oil prices stabilised on Monday, with Brent crude futures gaining 0.8% to $79.70 per barrel, but the year-over-year increase has been minimal.
At $1,793 per ounce, gold was stable. The price of bitcoin stayed below $17,000.
