Getting Closer to a BoJ Rate Hike

The BoJ’s Ueda gives his strongest hint of a rate hike yet.

Key Takeaways

• Crypto Jitters Spread to Risk Assets: We kick December off in a different manner than how markets closed in November, as sharply negative sentiment in the crypto space has spread across the risk-on trade. Bitcoin has tumbled -5.0% overnight to below $87,000. Yet, spot gold has edged +0.4% higher; crude has firmed by +0.5% after an attack on Russia’s key Black Sea terminal and the OPEC+ announcement of a three-month plan to halt its output hikes; and the tightness in the metals market has taken copper back close to the July all-time highs.

• December Rate Hike in Japan Now Much More Likely: The global bond market has sold off a touch (so no flight-to-safety here), as BoJ Governor Kazuo Ueda provided his greatest clue to date that the central bank is getting close to nudging the policy rate higher. The 2-year JGB yield rose by +3 basis points to 1.02%, the highest it has been since 2008, as the swaps market moved to price in over an 80% chance of a December 19^th rate hike. This is up from 58% at Friday’s close, and just 23% odds a week ago. This took dollar-yen to ¥155.4 from ¥156.2, and the DXY dollar index down by more than -10 pips to 99.4, back below the 200-day trendline.

• Two Sectors to Watch This Week: Keep your eye on Energy stocks, which seem primed here for a countertrend bounce and trade at cheap multiples, which are currently nearly a 30% discount to the overall market. And add U.K. Financials to your watch list because there is chatter that we will see British capital requirements eased in a landmark review that is expected to be part of this week’s Bank of England’s Financial Policy Committee statement (these buffer ratios are currently far higher than in most other industrialized countries).