Yen rises on expectations for Japanese rate hikes

The Yen was very strong versus the dollar, hitting a 3-month high of 151.35 after traders anticipated a rate hike from a comment by Bank of Japan’s Governor Kazuo Ueda. The oil price dipped below $70 per barrel for the first time since June. The Dow Jones barely held on to recent gains in morning trade, with the NASDAQ up 1.4% and the S&P 500 up 0.8%. Fundamental direction has been thin with jobs data mixed thus far, and the official employment report still on tap tomorrow morning.

TODAY’S MAJOR NEWS

Yen rallies on rate hike expectations

The Japanese yen is posting its largest rally in almost a year today, gaining well over 2% to post nearly a four-month high. Bank of Japan’ Governor Ueda said last night said they have “several options on which interest rates to target” once they get short-term rates out negative territory. The Nikkei 225 is up close to 30% in the year-to-date, but has traded in a range since June after talk of an end to the previous quantitative easing policy was announced. The BoJ is the last of the major central banks to hold an ultra-low rate policy. The FOMC is set to meet next Tuesday and Wednesday, and the European Central Bank will hold their final meeting of 2023 next Thursday. Neither is expected to move current interest rates, but the market sees both major banks starting in on rate cuts in early 2024.

Oil prices continue to fall

WTI crude oil values dipped below the $70 per barrel mark this morning. Doubts remain over whether OPEC+ will follow through on planned production cuts, domestic production and exports remain ample (shipments are reportedly nearing a record six million barrels per day) and continue to weigh on global supply.

Weaker labor market data ahead of Friday’s NFPR

Today’s continuing claims figure were promising, with reports are showing businesses hiring fewer employees, and layoffs remain low. For November, the national unemployment rate is expected to remain steady at 3.9% tomorrow morning, with nonfarm payrolls expected to rise from 150,000 to 186,000.

• Initial jobless claims for the week ending December 2 were as expected at 220,000, virtually unchanged on last week (219,00, revised up a tick from 218,000 previously).
• Continuing claims lower than expected at 1.861 million for the week ending November 25, below the 1.910 million estimated, and down from 1.925 million for the previous week
• That was only the second such drop since early September, and the largest week-over-week fall since July

Inventories continue falling, indicates business pessimism

• Merchant Wholesalers Inventories fell by 0.4% in October, less than the expected 0.2% decline, and worse than the 0.2% decline last month
• Inventories have declined now for all but two of ten months this year, suggesting that companies are becoming more doubtful about consumer spending

TODAY’S MAJOR MARKETS

NASDAQ sparkles in dull market

• NASDAQ was today’s market leader, up 1.4%, while the S&P 500 was up 0.8% and the Russell 2000 was up 0.3%
• Global equity markets were mixed overnight, with the Nikkei 225 off 2.1% on fears that domestic interest rates would be hiked, the Dax was off 0.2%, and the FTSE 100 was unchanged
• The VIX, Wall Street’s fear index, rose to 13.0

Bonds yields and Dollar falls

• The rally in US bonds continues, with 2- and 10-year yields falling to 4.57% and 4.12%, respectively.
• 10-year TIPS index-linked yields fell continued to fall under two percent, down to1.97%
• The dollar index fell 0.5% to 103.7
• Versus the dollar, Yen was up 2.1% (having hit a year-to-date high of Yen/USD 151.35)

Oil slide continues

• Oil prices continued to slide, down 0.5% to $69.1 per barrel
• Gold prices fell 0.4% to $2,040 per ounce, while Silver prices fell 0.9% to $24.0 per ounce
• The run of US soft red winter wheat daily flash sales to China has halted – at least for now – and wheat is reacting accordingly after a strong recent rally

Analysis by Matt Zeller, Commodities Analyst: Matt.Zeller@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com