World shares faced challenges on Tuesday, while the Japanese yen slid to nearly a one-year low against the dollar after the Bank of Japan’s moves toward ending years of massive monetary stimulus left some investors underwhelmed.
European shares saw a modest 0.3% increase, driven by real estate and chemical stocks. This provided some relief after Asian equities experienced losses due to renewed fears over the prospects for the Chinese economy following weak manufacturing data.
Despite this gain, the STOXX 600 is poised for its worst monthly performance since September 2022.
The MSCI world equity index, tracking shares in 47 countries, remained flat. Wall Street futures indicated minor losses.
The yen fell 0.9% against the dollar, touching a session low of 150.36, as the central bank made adjustments to its bond yield control policy (YCC), further loosening its grip on long-term interest rates.
Market analysts viewed this move by the central bank as a small step toward dismantling the long-running YCC policy. However, the yen depreciated as traders focused on the BOJ’s dovish pledge to “patiently” maintain accommodative policy and forecasted inflation slowing back below 2% in 2025.
The BOJ had previously faced criticism for defending the cap, which caused market distortions and an unwelcome depreciation of the yen. In July, it raised the de-facto ceiling for the yield to 1.0% from 0.5%.
The yen has come off – that’s because markets were expecting more,” said Close Brothers Asset Management Chief Investment Officer Robert Alster.
The yen also weakened against the euro, with the single currency rising by 1% to a 15-year high of 159.945.
In government bond markets, the yield on 10-year JGBs slightly eased following the BOJ’s announcement but remained at decade-high levels.
China Data Sparks Market Concerns
Earlier, Asian equities slid due to Chinese manufacturing activity returning to contraction, raising concerns about the world’s second-largest economy. Recent indicators had shown a nascent recovery in China.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 0.7%, hovering close to the one-year low it touched last week. The index has fallen by 4% in October and is on track for a third consecutive month in the red.
Nomura analysts anticipate that economic conditions in China will likely remain poor or even deteriorate further in the next few months.
Investors this week are closely monitoring major central bank meetings, including those of the U.S. Federal Reserve and the Bank of England.
Later on Tuesday, the Federal Open Markets Committee is expected to keep the Fed funds target rate at 5.25%-5.50% during a two-day monetary policy meeting. The U.S. economy has shown resilience in recent data, and comments from Fed Chair Jerome Powell will be scrutinized to gauge how long interest rates are likely to stay elevated.
The yield on 10-year Treasury notes was up 0.9 basis points at 4.886%.
The dollar index, measuring the U.S. currency against six rivals, remained stable. The euro was set to reverse two consecutive months of losses, with a slight 0.3% gain for October. The single currency was last up 0.2% at $1.0632.
In the commodities market, oil prices increased as concerns over supply due to Middle East conflicts offset concerns related to China. U.S. crude rose by 0.8% to $82.86 per barrel, and Brent stood at $88.21, up 1% on the day.
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Market participants are encouraged to stay vigilant as they closely monitor these developments, shaping their strategies and positions in response to the evolving dynamics in the financial markets.