In Europe, stocks turned back into the red after the Bank of Japan
By Claude Chenjou
PARIS (Reuters) – Wall Street is expected to be mixed at the open on Tuesday, with European stocks leaving mid-session red a day after a bold rally, with risk appetite dampened by a particularly surprising decision. The Bank of Japan (BoJ) is the latest major central bank to moderate its policy on interest rates.
New York index futures point to Wall Street down 0.11% for the Dow Jones, 0.06% for the Standard & Poor’s 500 and 0.16% for the Nasdaq.
In Paris, the CAC 40 was down 0.14% at 6,463.95 around 12:25 GMT. In Frankfurt, the Dax index lost 0.16%, and in London, the FTSE lost 0.05%.
The pan-European FTSEurofirst 300 index fell by 0.23%, and the Stoxx 600 fell by 0.16%. The EuroStoxx 50 of the euro zone, in turn, rose by 0.08%.
The Bank of Japan surprised markets by announcing after two days of monetary policy meetings that it will now allow Japan’s ten-year bond yields to fluctuate between -0.5% and +0.5%, while the ceiling was previously set at 0.25. %.
The decision is aimed at reducing the impact of its very accommodative monetary policy, unlike that of major central banks. Sources told Reuters a day earlier that Japan is considering revising its anti-deflation policy next year when current BoJ governor Haruhiko Kuroda’s term ends in April.
Despite the easing of yield curve controls, the BoJ kept the negative interest rate on bank deposits at -0.1% and announced it would sharply increase bond purchases.
In financial markets, the Nikkei index fell 2.46%, its lowest since Oct. 13, and the ten-year bond yield hit its highest level since 2015 at 0.47%, very close to the BoJ’s new hidden ceiling.
For analysts such as UBS’s Gerry Fowler, the Bank of Japan’s decision, albeit a modest one, is the first step toward an end to its ultra-accommodative policy, which could lead it to attack an inflationary turnaround. Above the 2% target for most of 2023.
VALUES IN EUROPE
In Europe, cyclical divisions such as automotive (-0.85%) and tourism (-0.91%) recorded some of the biggest declines, once again punished by fears about the economy’s evolution.
The Stoxx 600’s best-performing banking index (+1.24%) benefits from the prospect of a continued rise in interest rates, while real estate (-1.62%) is left behind for the same reasons. Aroundtown and Derwent London, down 6.03% and 1.55% respectively, weigh on the division after Berenberg lowered its price targets on the two stocks.
In Paris, Elior advanced 3.49% after the announcement of the signing of the protocol for the acquisition of the Multiservices division of its main shareholder Derichebourg (-1.74%).
Engie, which was invited by the Belgian authorities to increase its nuclear reserves by 3.3 billion euros, lost 4.83%.
Orange lost 0.79% in response to the announcement that Chief Financial Officer Ramon Fernandez will leave at the end of the first quarter of 2023.
In the foreign exchange market, the Japanese currency strengthened during the session to 132 yen to the dollar, a level not seen since mid-August after the BoJ announcements.
The dollar lost 0.65% against a basket of benchmark currencies, while the euro rose 0.24% to $1,063.
Bond yields are rising in both Europe and the US, followed by Japan, where ten-year JGB yields hit their highest level since 2015 at 0.47%.
The ten-year German Bund yield rose 7.1 basis points to 2.26%, a fifth straight session in the green.
The American equivalent of the same maturity is trading at 3.64%, up 6.6 points after hitting a one-month high of 3.71%.
A falling dollar is supporting oil prices, but a resurgence of the COVID-19 outbreak in China is limiting their gains.
Brent rose 0.51% to $80.21 a barrel, US light crude oil (West Texas Intermediate, WTI) rose 1.33% to $76.19.
(Writing by Claude Chendjou, Editing by Kate Entringer)