Global stock markets hovered near all-time highs while the Japanese yen experienced a significant surge as confidence grew that the Bank of Japan (BOJ) would finally begin to raise interest rates in March, making it the last of the major central banks to do so.
European stocks remained steady, and Nasdaq 100 futures saw a 0.3% increase following Wednesday’s gains. These gains came after Federal Reserve Chairman Jerome Powell indicated to lawmakers that the easing of monetary policy is still on track to begin this year, though he is in no rush to start rate cuts.
In individual stock movements within Europe, Virgin Money UK Plc saw an increase as Nationwide Building Society agreed to acquire the lender for £2.9 billion ($3.7 billion). Novo Nordisk A/S jumped to a record high after releasing data on its weight loss drug, Amicretina.
The yen stole the spotlight, rising up to 1% against the dollar, following accelerated wage growth and comments from a BOJ board member which fueled speculation that Japan’s negative interest rates might increase for the first time since 2007. Tokyo’s Nikkei 225 index dropped over 1%, and the yield on two-year government notes climbed to its highest level since 2011.
This move sparked concerns that higher rates in Japan could attract Japanese money currently parked in foreign markets back home. The dollar fell 0.2% against a basket of currencies, marking its fifth day of losses.
“Japanese demand for foreign assets, particularly U.S. Treasuries, has remained strong, but this can’t be taken for granted once Japanese yields reach potentially more attractive levels,” stated Michael Metcalfe, head of global macro strategy at State Street Global Markets.
Investors are also looking for signals from the European Central Bank (ECB) on when it might start to cut rates. The bank is expected to keep rates steady at 4% on Thursday, with less than 100 basis points of movement currently priced in, following a reduction in earlier expectations.
Furthermore, Powell will continue his testimony to Congress, while the latest weekly job benefits data will set the stage for Friday’s non-farm payroll figures.
Metcalfe from State Street noted that markets have calmly reacted to reduced rate cut bets for 2024, with only three cuts now expected, aligning with the Fed’s own projection. However, traders are now unsure if the Fed might guide for even fewer cuts.
“Markets might be in a holding pattern because they’ve reached a point where they are aligned with the Fed,” he said. “The ball is now in the Fed’s court.”
Gold extended its rapid ascent, reaching a peak of $2,161.48 an ounce. Oil traded steadily after West Texas Intermediate rose 1.3% on Wednesday, amid new tensions in the Middle East, including the first confirmed commercial crew casualties after Houthi militants initiated attacks in the region. Bitcoin saw an increase but remained below record highs.