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Wall Street ends green, dollar dips, Treasury yields rise on BOJ policy shift

Published 12/19/2022, 08:58 PM
Updated 12/20/2022, 04:47 PM
© Reuters. FILE PHOTO: Pedestrians wait to cross a road at a junction near a giant display of stock indexes in Shanghai, China August 3, 2022. REUTERS/Aly Song

By Stephen Culp

NEW YORK (Reuters) - U.S. stocks closed higher on Tuesday in a modest reversal of a four-day sell-off, but the greenback lost altitude and bond yields jumped in the wake of an unexpected policy pivot from the Bank of Japan (BOJ).

All three major U.S. equity indexes rebounded from an early-session dip, while the rising yen sent the dollar lower, and 10-year U.S. Treasury yields touched their highest level this month in reaction to the Japanese central bank's surprise policy change to allow long-term interest rates to rise.

"Japan has been consistently consistent for many years," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "The slightest tweak in their policy has investors scratching their heads as to how to interpret that going forward."

As of Monday's close, the benchmark S&P 500 had fallen 5% from last Tuesday.

Indeed, the S&P 500, the Dow and the Nasdaq are all on track to notch their biggest annual percentage drops since 2008, the darkest year of the global financial crisis, largely due to persistent inflation and the Fed's increasingly hawkish battle against it.

"A calibration is happening with regards to the Fed's language last week, and the market is digesting it," said Keator, who added that "there's a lot of work (the Fed has) done this year that will take time to take root."

"It's better to pause than to pivot and cut, because the Fed's been vocal about the fact that it's not their intention to reverse course anytime soon," Keator said.

The Dow Jones Industrial Average rose 92.2 points, or 0.28%, to 32,849.74, the S&P 500 gained 3.96 points, or 0.10%, to 3,821.62 and the Nasdaq Composite added 1.08 points, or 0.01%, to 10,547.11.

European stocks were pulled lower by interest rate-sensitive tech and industrial stocks following the BOJ's announcement that it would allow long-term interest rates to rise, joining its global counterparts in their inflation-taming policy tightening.

The pan-European STOXX 600 index lost 0.40% and MSCI's gauge of stocks across the globe gained 0.16%.

Emerging market stocks lost 0.61%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.08% lower, while Japan's Nikkei lost 2.46%.

U.S. Treasury yields jumped after Japan's central bank broadened its yield curve control, which prompted a global bond sell-off.

Benchmark 10-year notes last fell 30/32 in price to yield 3.6918%, from 3.583% late on Monday.

The 30-year bond last fell 74/32 in price to yield 3.7466%, from 3.623% late on Monday.

Japan's surprise policy review sent the yen to a four-month peak against the greenback, and the dollar fell sharply against a basket of currencies.

The dollar index fell 0.69%, with the euro up 0.17% to $1.0623.

The Japanese yen strengthened 3.94% versus the greenback at 131.71 per dollar, while the British pound was last trading at $1.2178, up 0.26% on the day.

Crude prices forfeited earlier gains on worries that a major U.S. winter storm could persudade millions of Americans to curb their travel plans.

U.S. crude settled up 1.2% at $76.09 per barrel, while Brent rose 0.24% to settle at $79.99 on the day.

© Reuters. FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (NYSE) is seen in New York City, U.S., November 15, 2022. REUTERS/Brendan McDermid/

Gold breached the $1,800 level on the back of the falling dollar.

Spot gold added 1.7% to $1,817.55 an ounce.

Latest comments

Putin speaking about a new booomb nearly ready saaatan 2 over 200 tons he will drop it in Ukrainian
If this is the best our dead kitty can do after days of selling, all indices will be down at least 1% tomorrow.
Reverse huh kind of like what happened to our money’s value thanks Trump and Biden and don’t forget Dick Nixon who put the stamp on the fiat debt credit score garbage currency
wow ok i said that to my grandfather he said he didn’t need a suitcase full of cash just to buy a car until the last 2 decades
  "USD is near 2 decades high" refers to strength of USD relative to other currencies.  That did not reverse.  Current high inflation is global, not just USD, which isn't suffering near the highest inflation, so not the fault of the US.  Look to the Kremlin & CCP.
In fact, the US being a net exporter of food & energy is helping to keep global inflation down.
laughing stock mitchel is back with his usual compliments...
The laughingstock of the investing world miraculously "reverses" when it goes negative.  What a flagrantly manipulated JOKE.  A 5 year old could recognize the fraud.
It's easy to lie to a 5 year old; they're naive.  What's your excuse?
massive x-mas rally embarking on its way finally?
No Japanese free money to pump up world markets it seems.. everybody panic .. it's going to zero 😅
US market is green
hmm now it's not green anymore .. i can play this game whole day .. it's like a yo yo
Yes, it's a pointless game you shouldn't have started.
Globalization 2.0. All the currencies going home to roost, Nationalization 2.0.
Won't be long before the US dollar is irrelevant.
  What is better suited to take USD's place?
I know I'm missing something here. Why did index futures drop on this news? DXY fell. What am I missing? Is it that the Fed is expected to have to respond hawkish in our rate hike plan?
US 10 years yield...its not gg down!
Yes, fed rate hikes is for make dollar down. Thats why i keep telling dont buy dollars. They make themself fat and fatter. Another countries all diet until poor.
This is not good
Im still learning this whole game of investing. I knownkts not good for Japan tonhave cheap money. But im confused on why this decision has rocked the global economy
Because, prior to this, Japanese entities looking for viable long term investments, would have to make those investments outside of Japan. Now with this rate inversion, those investments are likely to return to Japan. Which is also why the Yen surged as people buy it to invest in situ
  Demand for Japanese gov't bonds went up, not Japanese stocks
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