Headlines

* Asia stocks fluctuate after S&P500 snaps losing streak

* Goldman says BoJ could remove negative interest rate next

* Oil holds two-day gain on stockpile decline, supply risks

* Yen eases as traders digest BoJ surprise policy tweak

FX: USD hit the skids and turned lower yesterday. The cycle low on the DXY is 103.44. US Treasury yields climbed higher for a fourth day in a row this morning after the BoJ policy decision. The 10-year treasury yield is nearing 3.70%. The 50-day SMA sits at 3.82%.  

USD/JPY eventually closed 3.8% lower, which was the fourth biggest decline since the Plaza Accord. The low on the day was 130.56 before the major closed at 131.69. EUR/USD printed a “doji” candle. It remains just below the pandemic low at 1.0636. GBP/USD was quiet and hovers above the 200-day SMA at 1.2084. AUD has fallen below the mid-July low at 0.6681. The NZD has rolled over and looks to be heading to the 200-day SMA at 0.6257.

Gold shot higher bouncing strongly off the 200-day SMA at $1784. The precious metal got close to the cycle high at $1824.

Stocks: US equities closed flat to slightly firmer in mixed trade. The S&P 500 added 0.1%. The Nasdaq lost 0.1% and the Dow outperformed, gaining 0.3%. It is the start of the last full trading week of the year. That means liquidity isdwindling. Catalysts have been light this week with yesterday’s US data showing further dips in November housing starts and building permits.

Asian stocks traded mixed with news flow quieter.The Nikkei 225 remained pressured by the recent JPY strengthening. The region overlooked reports that Japan maintained its overall economic view in December. US equity futures trended higher overnight and are firmly in the green. European equity futures are also firmer. The Euro Stoxx 50 future is pointing up +0.6%. The cash market closed with a small loss of 0.2%.

Event Takeaway –Digesting the BoJ “pivot”

The yen has moderated, and Japanese government bond yields rose today, one day after the BoJ’s stunning policy shift. The surprise tweak to its bond yield control allows long-term interest rates to rise more. This move is aimed at easing some of the costs of prolonged monetary stimulus. We note the yield on two-year notes has inched into positive territory for the first time in seven years. It seems we can potentially add “pivot” to the last remaining major central bank that sticks to an ultra-loose monetary regime. It also looks like the latest step in a global trend of central banks giving up on manipulating interest rates.

The market was caught very off-guard. The bank’s move appears to have been taken during holiday trading conditions for maximum effect. Certainly, it should help quell speculative positions built up against the yen. This should ultimately provide a positive for Japanese equities. It could also help global economies a little by weakening the dollar. But it may also make investors worry about more surprises to come. Governor Kuroda has stunned markets multiple times during his near decade in office. Will we see more follow up moves in the coming months? Or after April when his term expires?

Chart of the Day – Gold jumps higher to cycle highs

The BoJ’s move, on the surface, sends mixed signals for bullion. The dollar fell while bond yields rose. It is the latter and the prospect of higher yields in Japan after years of artificially low rates which could be a negative for gold in time. But yesterday’s move lower in the greenback saw bugs bid up the precious metal. The new US spending bill has put some pressure on the dollar with gold prices rallying based on more liquidity in the system.

Since the current rally in gold in early November, prices have not dipped below the 21-day SMA. It has been trading around the 200-day SMA for the past few weeks which is now at $1784. The cycle high at $1824 is key. Above that is the 50% mark of this year’s decline at $1842. The June top is at $1879.