Bank of Japan Changes Policy
STOCK INDEX FUTURES
Stock index futures are lower after the Bank of Japan made a surprise decision to let a benchmark interest rate increase.
In addition, traders remain concerned that a more hawkish Fed could tip the economy into recession.
Housing permits in November were 1.342 million when 1.495 million were expected and housing starts were 1.427 million when 1.400 million were anticipated.
This Bank of Japan’s policy change is probably the last of the bearish news for a while.
Despite recent pressure on futures, the fundamentals and technicals for stock index futures remain supportive.
The Japanese yen is sharply higher after the Bank of Japan made a surprise decision to let a benchmark interest rate increase.
The BOJ said the yield on the 10-year Japanese government bond could increase to as high as 0.50% from a previous cap of 0.25%. The central bank had set a target range of near zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low.
The 10-year yield, which had remained near 0.25% for months because of the central bank’s cap, quickly moved up to 0.40%.
The U.S. dollar index continues to underperform the news.
Interest rate differential expectations are long-term bearish for the greenback, and lower prices are likely.
Germany’s producer price index eased in November for the second month in a row, adding to signs that inflation may have peaked. Producer prices of industrial products increased 28.2% on the same month last year compared with a 34.5% year-on-year increase in October. Analysts had forecast a November reading of a 30.6% increase.
The trade surplus in Switzerland declined to CHF 0.5 billion in November of 2022, which is the smallest trade surplus since January 2018.
INTEREST RATE MARKET FUTURES
The 30-year Treasury bond futures are lower in response to the tightening move by the Bank of Japan, which pushed up global yields.
This Bank of Japan policy change is probably the last of the bearish news for a while.
According to financial futures markets currently, there is a 63.0% probability that the Federal Open Market Committee will increase its fed funds rate by 25 basis points at the February 1 policy meeting and a 37.0% probability that the rate will be hiked by 50 basis points.
The fundamental and technical aspects are supportive for futures.
I will be out of the office on Wednesday, December 21.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.