Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: – Yen soared to 131.80 versus the dollar and global bond yields rose after the BOJ raised its yield cap on 10-year bonds - 21 December 2022

Equities 6 minutes to read
APAC Research

Summary:  The top story of the day was the unexpected decision from the Bank of Japan to raise its cap on the 10-year government bond yield to 0.50% from 0.25%. The Yen jumped versus all major currencies and strengthened by 3.7% to 131.80 versus the U.S. dollar. The U.S. 10-year Treasury yield surged 10bps to 3.68% while the S&P 500 managed to snap a four-day losing streak to finish slightly firmer. In extended-hour trading, Nike and FedEx gained on earnings beats. Chinese and Hong Kong stocks declined in a risk-off session.


What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) finished the session mixed

S&P 500 pared the post-BOJ upward yield cap adjustment loss and managed to snap a four-day losing streak to finish 0.1% higher on Tuesday. Nasdaq 100 edged down by 0.1%. Energy, rising 1.5%, was the top gainer within the S&P500 as the WTI crude gained 1%. Consumer discretionary, dropping by 1.1%, was the biggest losing sector. On single stocks, Tesla (TSLA:xnas) was the biggest loser within both the S&P500 and Nasdaq 100. The electric vehicle maker tumbled 8% on Tuesday, following analyst downgrades. The stock shed 23.8% in December, significantly underperforming the 3.8% decline in Nasdaq 100 and the 3.4% loss in S&P 500. Nike (NKE:xnys) jumped nearly 12% in the extended-hour trading after the sportswear company reported revenue and earnings beats.

Yields on 5-30-year US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) surged on the hawkish BOJ surprise

From the Intermediate through the long-maturity Treasuries sold off on the Bank of Japan’s decision to move its cap on 10-year Japanese government yields to 0.5% from 0.25%. Large blocks selling came in the five-year and 10-year futures contracts. The 10-year yield jumped 10bps to 3.68%, breaking the upper bound (in yield) of the trading range in December. Yields on the 2-year, anchored by the Fed’s rate path, finished the session unchanged. The 2-10-year yield curve steepened by 9bps to 58bps. The housing data released on Tuesday was mixed. Housing starts shrank by 0.5% M/M, less than the -1.8% expected but housing permits were down 11.2% M/M in November, much weaker than the -2.1% consensus in the Bloomberg survey.

Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg) declined in a risk-off day

Overnight U.S. stock market weaknesses, concerns about the spreading of Covid-19 in mainland China, and the upward adjustment the of yield cap by the Bank of Japan contributed to the risk-off sentiment in the Hong Kong and mainland Chinese stock markets.  Hang Seng Index declined 1.3% and CSI300 Index plunged 1.7%. Technology stocks underperformed. Hang Seng TECH Index tumbled 3.1%, with Alibaba (09988:xhkg) and Tencent (00700:xhkg) dropping by around 3.4% each and Bilibili (09626:xhkg) tumbling 6.7%. Placement of shares at discount from two Hong Kong-listed Chinese developers, Agile (03383:xhkg) down 17.4%, and CIFI (00884:xhkg) down 16.5% weighed on the property sector. Country Garden (02007:xhkg) shed 8.8%.

FX: USDJPY tumbled 3.7% to 131.80 on BOJ’s 25-bp hike to the 10-year JGB cap

The Bank of Japan surprised with a 25 basis point hike to the 10-year JGB cap, even as Governor Kuroda tried to ease the impact of the move on markets in his post-meeting press conference with statements suggesting that was “not a rate hike” and that it is too early to consider a general exit from or review of its Yield Curve Control (YCC) policy framework. USDJPY shed 3.7% to 131.80. The Japanese Yen soared more than 3% versus major currencies. Saxo’s Head of FX Strategy, John Hardy notes that the scale of the JPY reaction and its more than 12% rally off the lows against the US dollar, together with far lower commodity prices help ensure that we are very unlikely to see further policy tweaks under Governor Kuroda’s leadership. The ability of the JPY to continue higher after this step-wise reset will depend on the follow-up direction in global yields. FedEx (FDX:xnys) surged 4.3% in the extended hours on results beating earnings estimates.

Crude oil (CLF3 & LCOG3) bounced on API inventory drawdown

WTI crude oil gained 1% to USD76.1 as the American Petroleum Institute (API) said crude oil inventories in the U.S. dropped by 3.1 million barrels last week.

What to consider?

BOJ’s surprise policy tweak

Bank of Japan tweaked its long-held Yield Curve Control (YCC) policy in a surprise announcement after the December 19-20 meeting. The central bank widened the band in which it would allow rates for 10-year Japanese government bonds to move to -/+ 0.5% from -/+ 0.25% previously. The rest of the monetary policy levers were left unchanged, including the 10-year target still being held at 0%. In her notes, Charu Chanana suggests that the run higher in Japanese yields is likely to create further volatility in global equity and bond markets. As the market once again pressures the BOJ to move towards an eventual exit, the short JGB or long yen trades could potentially have more room to run. This is not just yen positive, but also negative for foreign assets. In terms of equities, this could mean a favourable stance towards Japanese financials vs. exporters and technology companies. For more details about the BOJ policy change, please refer to Charu’s notes.

Results from Nike and FedEx beat expectations

Nike reported results from FY23 Q2, that ended on Nov 30, beating analyst estimates in sales and margins. Adjusted EPS came in at USD0.85, well above the US0.65 forecasted by analysts. Although inventories increased by 43% Y/Y, the management attributed the buildup to “abnormally low levels” resulting from supply chain disruption a year earlier. The company’s management gave an upbeat assessment of the holiday season sales momentum. FedEx reported FY23 Q2 Adjusted EPS at USD3.18, beating the USD2.8 expected. The positive surprise resulted from a combination of price increases and cost cuts despite a decline in package volume. The logistics giant guided an additional USD1 billion of projected cost cuts in fiscal 2023.

 

For our look ahead at markets this week – Read/listen to our Saxo Spotlight.

For a global look at markets – tune into our Podcast.

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.