Global stocks head for first weekly loss since October

Singapore/London — Japan’s yen was on track for a fourth weekly gain on Friday as traders speculated the ultra-dovish Bank of Japan was moving closer to tightening monetary policy.

World stocks, meanwhile, teetered on their first weekly loss since October as a rally fuelled by hopes of the US Federal Reserve and the European Central Bank cutting interest rates paused ahead of key US jobs data.

The yen, last at ¥144.29/$ on Friday following a rapid rebound after trading close to a 30-year low in November, was on track for a 1.75% rise this week after also gaining a similar amount the week before.

“The direction is not a surprise,” said State Street's Tokyo branch manager Bart Wakabayashi. “But this move and the speed of this move have blown away my expectations.”

The Japanese currency had gained more than 2% on Thursday after BOJ Governor Kazuo Ueda forecast an “even more challenging” year ahead, which traders took as a sign the BOJ could end its negative interest rate policy as early as January.

The BOJ will next set monetary policy on December 19. Tokyo's Nikkei ended Friday down 1.7% for a weekly drop of 3.4%, with exporters such as automakers falling hardest.

Outside Japan, MSCI’s broad gauge of world stocks traded flat, heading to a 0.1% weekly loss after five weeks of gains. Europe’s Stoxx 600 share index was 0.2% higher, set for its fourth straight week of increases. Futures indicated the US S&P 500 would flatline in early New York trading.

Complacent

Global markets have been anticipating rapid rate cuts by central banks as soon as March next year even though economic forecasters do not expect significant recessions in the US or the eurozone.

The S&P 500 is more than 9% higher since early November. The 10-year treasury yield which moves inversely to the price of the benchmark debt and tracks expectations for long-term borrowing costs, has dropped from more than 5% in late October to less than 4.2%.

“There’s so much complacency in the market right now,” said Olivier Marciot, cross-asset portfolio manager at fund manager Unigestion.

“You can’t have a consensus calling for a soft landing and, at the same time, investors pricing in major cuts.”

The VIX, a measure of implied volatility on the S&P 500 that broadly illustrates investor anxiety about stock market corrections, traded at 13.1 on Friday, almost its lowest since before the Covid-19 shock of early 2020.

Payrolls

On Friday, however, US employment data could shatter the market’s calm. US nonfarm payrolls figures released later in the day are expected to show employers added 180,000 jobs in November. An upside surprise could drive traders to reverse predictions for more than 125 basis points of Fed rate cuts in 2024, analysts warned.

“If the Fed is going to cut aggressively, it will be due to a recession and a notable drop in inflation led by unemployment. The numbers game of  (non-farm payrolls) suggests we are still far from those levels,” said BNY Mellon's head of markets strategy and insights, Bob Savage.

Some of this caution crept into government debt markets on Friday, with the 10-year treasury yield rising five basis points (bps) to 4.174%. Germany's equivalent bund yield added 3 bps to 2.229%.

In currencies, the dollar index was set to end the week 0.5% higher at 103.7 as it survived the yen’s surge due to euro weakness. The common currency has fallen 2.7% this week as rate cut expectations ramped up following a sharp slowdown in inflation in the bloc.

Brent crude, which touched a six-month low on Thursday on worries of sluggish demand, recovered slightly to $75.63 a barrel, still set for a 4.% fall this week.

Gold, having touched a record high early in the week before recoiling, was flat on the day at $2,030/oz.

Reuters