Market Wrap: 21 December 2022

Market Wrap: 21 December 2022

Asia Stocks Rise After S&P 500 Snaps Losing Streak:

  • Yen steadies after best day since 1998 on BOJ surprise
  • Treasury yields edge higher, adding to surge this week

Asian equities advanced Wednesday after US shares snapped a four-day losing streak, providing a moment of respite in one of the worst years for stocks and bonds in more than a decade.

The yen moved fractionally lower after its biggest one-day jump since 1998 on Tuesday, when it climbed almost 4% against the dollar on a surprise policy adjustment from the Bank of Japan.

Japan’s two-year government yield rose above zero for the first time since 2015, while 10-year Treasury yields rose slightly in Asia after jumping 10 basis points for the second consecutive session on Tuesday. 

Shares advanced in Hong Kong, mainland China and Australia, along with US and European futures contracts. Japanese equities fluctuated and the nation’s bank stocks climbed for a second day on expectations that rising interest rates will boost their profitability.

The impact of the BOJ’s surprise decision to let yields on 10-year government bonds trade up to 0.5%, from a previous ceiling of 0.25%, continues to reverberate. The yield was around 0.45% on Wednesday.

Traders are on guard for the prospect of Japanese institutions repatriating money held in overseas stocks and bonds. Japanese investors have more than $3 trillion in foreign equities and debt with roughly half in the US, according to Bloomberg data. 


“Tighter BOJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly,” Deutsche Bank analysts told clients, noting the change has come as markets were “already reeling” from the Fed and ECB meetings last week.


Many economists now expect the BOJ to raise interest rates next year, joining the Fed, the ECB and others after a decade of extraordinary stimulus. 


Fresh data indicating a cool down in the US housing market offered some respite to the outlook for inflation in a year marked by quickly rising interest rates that weighed on stocks and bonds. Global equities have fallen by a fifth in 2022, on pace for their worst year since 2008. A Bloomberg index of global bonds has tumbled by 16%, by far the largest decline on an annual basis since the benchmark began in 1990.


Source: Bloomberg



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