Global financial markets experienced a muted day on Tuesday, as traders exercised caution following a decline in cryptocurrencies and a global bond selloff. The latter was triggered by the prospect of an interest rate hike in Japan, which has been gaining momentum. The S&P 500 futures remained steady after a decline on Wall Street overnight, while Japanese government bonds stabilized somewhat after a strong auction.
The yield on 10-year Japanese government bonds touched a 17-year peak of 1.88%, and 30-year yields reached an all-time high. However, the 10-year yield slightly decreased to 1.865% after the auction results were announced. Bitcoin, a key indicator of market sentiment, rebounded after a 5.2% slump on Monday, currently trading at around $87,000, which is 30% lower than its October peak.
In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%, while Tokyo’s Nikkei edged 0.1% higher after a sharp drop on Monday. South Korea’s Kospi led regional share gains, increasing by 1.6%, whereas China’s blue-chip CSI300 index declined by 0.8%. The expectations of a Japanese interest rate hike, potentially later this month, have intensified after Bank of Japan Governor Kazuo Ueda hinted at tightening policy.
This led to a surge in ten-year JGB yields and a subsequent sell-off in global bonds, causing ten-year Treasury yields to rise by 7.7 basis points to 4.096%. However, the 10-year Treasury yield retreated to 4.087% during Asian trading. Bitcoin and ether experienced a modest increase, with the former rising 0.6% to $86,965.30 and the latter gaining 0.3% to $2,800.42.
The yen strengthened in foreign exchange markets, trading at 155.64 per dollar on Tuesday, which in turn boosted the euro to briefly surpass $1.165. The dollar weakened more broadly, trading at $1.161 against the euro, as markets awaited eurozone inflation data. Some investors anticipate a more sustained decline in the US dollar as the country prepares to cut interest rates further and faster than its peers.
Recent data supports expectations of a December rate cut by the Federal Reserve, with manufacturing contracting for the ninth consecutive month in November. However, consumers exceeded analyst expectations with a $23.6 billion online shopping spree, marking the beginning of the holiday season. Gold maintained its recent gains, trading at just above $4,200 an ounce, while oil prices climbed following drone attacks on Russian supply, with Brent crude futures holding steady at $63.17 a barrel on Tuesday.
The current market trends and anticipated interest rate changes will likely continue to influence global financial markets in the coming days. As investors closely monitor economic indicators and central bank decisions, the significance of these developments will become clearer, potentially leading to further market adjustments.