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Yen sees biggest jump since January on hints of BoJ shift
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Global stocks fall after 10% rally
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Bond market rally stalls due to Japan signals
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Oil prices rebound after 4% dive
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Chart: Global Rates http://tmsnrt. rs/2egbfVh
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By Marc Jones
LONDON, Dec 7 (Reuters) – Japan’s long-contained yen jumped and global bond and inventory markets retreated on Thursday, as authorities in Tokyo made it clear as could be expected that an exit from ultra-low interest rates was near.
The yen rose 1. 7% against the dollar, its biggest daily gain since January, and at 144. 80 against the dollar, appeared to extend its post-COVID year-end record in full force.
The Nikkei’s biggest drop since last October sent Asian stocks lower overnight, while the FTSE 100 was flat, the DAX and CAC 40 fell 0. 2% and S futures
The governor of the Bank of Japan, Kazuo Ueda, added to the assumptions about the abandonment of negative rates saying that the management of financial policy “will be even more difficult from the end of the year and until next year” and defined several characteristics of what may happen next.
Money markets have priced in a roughly 40% chance that the Bank of Japan will get back on track at its last meeting of the year on Dec. 19. Japanese government bonds also fell sharply, with the 10-year JGB yields jumping 11. 5 basis points.
Societe Generale strategist Kit Juckes said end of year yen rallies had become the norm since the pandemic but this move looked different and SocGen sees it as precursor for a strong move up next year. “The yen is cheap as chips and it sounds like they (Japanese policymakers) have moved beyond the fact they are going to have to get rid of negative rates,” Juckes said.
“We have call of 130 (yen to the dollar) for the end of next year… as long as you think there is a bull market in U.S. Treasuries you are supposed to think there is a bull market in the yen too.”
In recent weeks, the rally in bond markets and fall in global borrowing costs has seen world stocks rise 10% and volatility, as measured by the VIX index, drop to its lowest since before the COVID pandemic.
Thursday’s action, however, put an end to the transience of that situation.
Traders expect a slight uptick in weekly US jobless claims data.
Data released on Wednesday also showed weaker-than-expected growth in U. S. personal sector payrolls, the latest sign of a slow cooling in the U. S. hard labor market.
OIL SWINGS
The strong move in the yen sent the dollar index down 0. 4% to below 104. Markets have priced in so many rate cuts from the Federal Reserve recently that investors feel vulnerable to a bullish wonder in U. S. data.
However, this was offset to some extent, as emerging expectations that the ECB would also cut rates next year hit the euro and left it at its lowest point against the Swiss franc in just nine years.
The yield on the 10-year U. S. Treasury note recovered from a three-month low of 4. 15%, the yield on the German 10-year bond, the benchmark for the euro area, moved slightly from its nearly seven-month low of 2. 2%. .
Sentiment toward China remained bearish after Moody’s issued a downgrade warning on China’s credit rating and downgraded the outlook for Hong Kong, Macau and Chinese government financial vehicles.
The industry’s mixed knowledge outside of China didn’t provide much of a boost either. November’s exports rose for the first time in six months, while imports declined, suggesting domestic demand remains weak.
China’s blue-chip index ended down 0.2% after hitting a five-year trough earlier in the session. Hong Kong’s Hang Seng index fell to a 13-month low.
Major commodity markets also remained volatile. Oil costs have stabilized after falling just around 4% on Wednesday — good news for those who remain nervous about inflation, even if it doesn’t bode well for the health of the global economy.
Brent crude futures rallied 1% to $75 a barrel, while U. S. West Texas Intermediate futures rallied to $75 a barrel. They rose 0. 6% to $69. 85 a barrel. Gold prices also rose to $2,033 per ounce.
(Editing by Kirsten Donovan)