US equities were a bit stronger Tuesday, but most of the market indulgence was on the surging Yen, which soared 4% against the USD after the BoJ’s unexpected decision to widen its 10yr yield target band. Nikkei fell 2.5%. Global bond yields also shifted higher following the BoJ announcement: US10yr yields are up 11bps to 3.69%.

The S&P 500 is trading moderately higher Tuesday amidst a rise in 10-year Treasury yields, a surprisingly constructive Housing Starts report, and more signs that the world is not only emerging from the pandemic but also from the post-GFC ultra-low rates environment that made investing casino-like for more than a decade.

Higher yields are not growth postive by any means, but I’m sure investors are happy to receive rather than to pay banks for the privilege of depositing money with them. And oddly enough, the street seems to welcome a bit of monetary policy normalcy back into their lives.

The move higher in yields follows a hawkish BoJ meeting where Japan’s central bank appears to have begun the process of finally backing away from its yield curve control policy that it has had in place since the 2008 Great Financial Crisis.


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Ultimately, the BoJ is reacting to a dysfunctioning bond market and a weakening yen. But the move also represents the fall of one of the last central bank hold-outs of ultra-low rate policy — as investors usher out a monetary policy trend that emerged in the wake of the 2008 Great Financial Crisis.


Oil prices are wedged between the Biden Administration’s bid to refill the SPR and demand implication over the worrisome 2nd and 3rd Omicron waves in China, where the Covid peak ( 10 million cases + per day) is expected sometime in January based on Hong Kong and Taiwan models.

Though unspoken, it is well understood that policymakers have decided to accept a sizeable Covid wave. And beyond the Covid shift, Chinese policymakers have taken more decisive steps to support the economy while broader macro policy continues to ease.

The trade-off is to expect weaker oil demand through the Covid “exit wave” across the country but possibly an above-consensus 2023 demand bounce on the accelerated pace of reopening.

Not only are market volumes cooling down and keeping traders grounded, but Mother Nature is entering the equation where a significant bomb cyclone will sweep through the US this week and unquestionably keep travellers nestled at home. The first round effect is the demand implication.


A weaker US dollar, seasonal physical demand, and central bank purchases in the gold markets could temporarily offset the widening negative carry of higher global yields.

But ultimately, gold always finds a friend in economic and recession uncertainty, and there will be lots of that getting talked about over Christmas dinner.

Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT