4.05pm: Markets pull out a win
US stocks regained ground at the close to pull out a win after three straight days of losses.
At 4pm, the S&P 500 was up 0.1% at 3,822, the Dow reached 32,850 for a 0.3% gain, and the Nasdaq was flat at 10,547.
The big news of the day came from the Bank of Japan, which finally reacted to growing price pressures overnight, according to IG's Joshua Mahoney.
"The decision to widen its yield curve control band signals how inflationary pressures have reached even the most price resistant nations in the world. The Bank of Japan’s decision to widen their band will raise borrowing costs for the nation, but for traders it goes to show that we should think twice about the notion that inflation is becoming less of a problem now that we have seen consecutive months of CPI declines in the US.”
12.05pm: Wall Street seesaws while trying to avoid four straight days of losses
US stocks edged up in noon trading after the Bank of Japan (BoJ) tightened its interest rate policy sooner than expected, changing its yield curve policy to allow the yield on the 10-year Japanese government bond to move 50 basis points either side of its zero target rate, up from 25 basis points.
At midday, the Dow rose 96 points to 32,853, while the S&P 500 added 7 points at 3,825 and the tech-heavy Nasdaq gained 9 points to 10,555.
“There’s still no Santa sighting. Buckle up,” Navellier & Associates founder Louis Navellier said.
“We’re not gapping down but certainly not clawing back last week’s losses,” he added.
Notable movers included shares of Wells Fargo & Company (NYSE:WFC), which slipped more than 1% after the bank agreed to a $3.7 billion settlement with the Consumer Financial Protection Bureau related to consumer abuses in its bank accounts, mortgages and auto loans.
9.35am: Bank of Japan’s surprise move shakes up markets
US stocks slipped into the red at the open in the wake of the Bank of Japan’s surprise decision to change its yield curve control policy.
Just after the market opened, the Dow Jones Industrial Average had shed 8 points or 0.02% at 32,750 points, the S&P 500 was down 9 points or 0.2% at 3,809 points, and the Nasdaq Composite was down 62 points or 0.6% at 10,481 points.
ING FX strategist Francesco Pesole noted that markets had been shaken from their pre-festive low volatility torpor this morning with the Bank of Japan’s announcement.
“The BOJ's role as an ultra-dovish outlier among global central banks had been a key driver of JPY weakness in 2022, and markets are now assessing whether today’s announcement is effectively a first step towards a broader policy normalization process in Japan, which would quite radically change the outlook for the yen in 2023,” Pesole said.
Pesole added that there was speculation that even higher JGB rates in 2023 could spill over into global bonds and equities like they did today.
“For now, the negative reaction in global equities is capping pro-cyclical currencies, and offering some USD support on balance, but broader dollar weakness is surely a possibility in the near term,” he said.
6.30am: Where’s Santa?
US stocks are expected to open flat to lower on Tuesday with the hoped-for pre-Christmas rally starting to look less likely after an unexpected policy change by the Bank of Japan led to stock market falls in Asia and beyond.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.1% in pre-market trading, while those for the broader S&P 500 index were flat and contracts for the Nasdaq-100 lost 0.2%.
Earlier today, the Bank of Japan delivered a surprise decision to widen the band of its yield curve control to between -0.5% and +0.5%, from +/-0.25% previously. The unexpected move caught markets by surprise and showed that Japan’s rate-setters too are worried about price pressures.
“It also suggests that the Bank of Japan is starting to become concerned about policy lags and inflation becoming more entrenched. It also gives them more flexibility in 2023 in the event they need to start applying the brakes to prevent a significant overshoot in inflation, with the potential that we could see a rate hike before the end of next year,” noted Michael Hewson, Chief Market Analyst at CMC Markets UK.
Over in the US, stocks fell for a fourth day running during the regular session on Monday and look set for more falls again.
“Once again it appears that uncertainty over the Fed’s rate path next year is keeping most people on the side-lines, as investors draw a line under their 2022 portfolios,” added Hewson.
Last week, the Federal Reserve lifted interest rates by 50 basis points and signaled that its fight to dampen inflation is not over despite its year-long spate of rate increases.
On the economic data front, US housing starts data, due out at 8.30am ET will likely get some attention.
Contact the author at jon.hopkins@proactiveinvestors.com