BOJ excites, Dow unlucky but Intel jumps
BOJ excites, Dow unlucky but Intel jumps
A Twist in Central Bank Policies Sends Markets on a Rollercoaster Ride
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A look at the day ahead in U.S. and global markets from Mike Dolan.
The Bank of Japan (BOJ) added an unexpected twist to a week of rising central bank interest rates on Friday, sending shockwaves through global markets. The move, although causing confusion, also brought a touch of humor to an otherwise intense trading day.
The long-awaited tweak of the BOJ’s ultra-easy bond-buying monetary policy led to a 13 basis point increase in long-term Japanese government bond (JGB) yields. Surprisingly, this move also weakened the yen against a strong dollar, resulting in some initial wild swings. While the Nikkei stock benchmark experienced a marginal decline, the overall market mood remained relatively upbeat.
The central bank’s decision to offer to buy 10-year JGBs at a fixed rate of 1.0%, instead of the previous rate of 0.5%, signaled their desire for more flexibility. It left traders puzzled, questioning whether this was a major policy change or merely an adjustment. Considering that core inflation in Tokyo fell to a 10-month low, some speculated that the need for tightening may be waning.
This twist from the BOJ came on the heels of interest rate hikes by the Federal Reserve and the European Central Bank earlier in the week. Both central banks delivered quarter-point rate increases while hinting that these could be the last of the cycle. Despite these actions, the market remained optimistic.
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The news of the BOJ’s policy tinkering started circulating around the markets late on Thursday. As a result, Treasury yields increased and Wall Street stocks pulled back. Unfortunately, this put an end to the Dow Jones bluechips’ hopes of achieving their longest winning streak in over a century. Instead, they settled for 13 straight gains through Wednesday, a feat not achieved since 1987.
The slowdown in the stock market rally followed the ECB’s decision to increase rates and positive economic updates from the United States. The U.S. gross domestic product unexpectedly accelerated in the second quarter, while inflation gauges remained subdued. Additionally, the jobs market continued to show strength, adding to the positive sentiment.
On Friday, markets seemed a bit scattered after a week filled with macro policy decisions and corporate news. However, the overall global market outlook remained positive. S&P500 futures were back on the rise, European bourses remained slightly down, and China’s indexes outperformed in Asia. The VIX volatility gauge settled below 14 after experiencing some significant swings on Thursday.
Meanwhile, U.S. Treasury yields retreated from two-week highs triggered by the robust U.S. economy and central bank actions. The 2-to-10 year yield curve steepened as recession fears eased. The dollar reached its highest level in over two weeks, with the euro/dollar falling below $1.10 due to dovish signals from the ECB regarding the end of their rate hike campaign.
In light of Friday’s events, there are several key factors to watch. First, U.S. corporate earnings are being closely monitored, with top companies such as Exxon Mobil, Chevron, and Proctor & Gamble set to release their quarterly reports. So far, an impressive 78% of S&P500 firms have beaten earnings estimates, indicating a 6.8% drop in year-over-year profits but steady revenue.
Second, various economic indicators will be released, providing further insights into the health of the U.S. economy. These include personal income and consumption data for June, PCE inflation gauges, the employment cost index for Q2, and the University of Michigan’s final July sentiment readings.
As we reflect on the twists and turns of the markets this week, it becomes clear that uncertainty and volatility are essential components of the financial world. Central banks’ actions, corporate earnings, and economic data all play a significant role in shaping market sentiment. Traders and investors must navigate these fluctuations with wisdom and a sense of humor.
In the midst of the unpredictable, one sector stood out. Chipmaker Intel defied expectations by reporting a surprise profit and providing better-than-expected guidance for the third quarter. This news propelled Intel’s stock up 7% after-hours and lifted chip stocks across the board. Amidst the broader market turbulence, success stories like Intel’s serve as a reminder of the resilience and potential gains the technology sector can offer.
In summary, the twist in the BOJ’s policy sent shockwaves through global markets. However, the overall sentiment remained positive, with expectations of strong corporate earnings and economic data. As traders navigate this rollercoaster of market volatility, they must remember that amidst the uncertainty, there are always opportunities for growth.
