U.S. stocks fell at the open Tuesday as pessimism permeated Wall Street following four straight days of losses for the major equity indexes. A hawkish move by the Bank of Japan to adjust the cap on its 10-year government bond yield also rattled markets, as investors worry aggressive monetary tightening by central banks around the world may cause a global recession. Last week, the U.S. Federal Reserve, European Central Bank, and others raised interest rates. The Associated Press has the story:
Stocks drift, bond yields jump, Japan shocks markets
Newslooks- NEW YORK (AP)
Stocks are drifting on Wall Street, and bond markets around the world are feeling pain Tuesday after a surprise move from Japan’s central bank cranked the pressure even higher on an already slowing global economy.
The S&P 500 was 0.1% higher after drifting between small losses and gains in early morning trading. The Dow Jones Industrial Average was up 68 points, or 0.2%, at 32,825, as of 10 a.m. Eastern time, while the Nasdaq composite was virtually flat after erasing an earlier loss of 0.9%.
The biggest action was in the bond market, where yields pushed higher after one of the world’s last bastions of super-low and economy-aiding interest rates made moves that could allow rates to climb more than otherwise.
The Bank of Japan said Tuesday it still wants the yield on 10-year Japanese government bonds to remain at roughly zero, but it also said it would allow the yield to move up to 0.50% instead of the 0.25% cap it had held previously. What made Tokyo’s unexpected move a particular surprise was that the world’s third-largest economy has been among the most resistant to join the global campaign to hike rates aggressively in order to undercut high inflation.
“BoJ’s surprise move allowed it to take a small step away from the extreme dovish side of the monetary policy spectrum, where it had stood alone all year among major central banks,” wrote Jennifer Lee of BMO Economics in a note to clients. “It is not joining the rate-hikers out there, but it is now a tad closer.”
Higher yields make borrowing more expensive, which slows the economy while also pushing down on prices for stocks and other investments. Other central banks around the world, particularly in the United States and Europe, have been raising rates at such an explosive clip that a growing number of economists and investors see a recession hitting in 2023.
Aftershocks from the Bank of Japan’s move rippled through bond and currency markets around the world.
In the U.S., the yield on the 10-year Treasury rose to 3.69% from 3.59% late Monday. That yield helps set rates for mortgages and other economy-setting loans, which has already meant particular pain for the U.S. housing market.
A report on Tuesday showed U.S. homebuilders broke ground on fewer homes for a third straight month in November. The number of building permits, meanwhile, fell to its lowest level since June 2020 when the pandemic froze the economy.
The two-year U.S. Treasury yield, which tends to more closely track expectations for action from the Federal Reserve, was more reserved. It rose to 4.28% from 4.26%.
In the foreign exchange market, Tokyo’s surprise move sent the value of the Japanese yen climbing against the U.S. dollar, which gave back some of its huge gains over the past year. One dollar now buys 132.52 yen, down 3.2% from a day earlier.
The Nikkei 225 index of Japanese stocks also fell 2.5%.
Stocks worldwide have been under pressure the entire year on worries about high inflation, higher interest rates and a weakening economy.
In Shanghai, stocks lost 1.1% after the World Bank cut its forecast for China’s economic growth this year to 2.7% from its June outlook of 4.3%. The bank cited repeated shutdowns of major cities to fight COVID-19 outbreaks. China now is relaxing some of its anti-COVID restrictions, but worries are rising that resulting breakouts of the virus could mean their own hits to the world’s second-largest economy.
European markets were modestly lower. Stocks that tend to get hurt the most by higher interest rates were among the hardest hit. Apple fell 1.8% and was the biggest single weight on the S&P 500, while Tesla lost 3.1% and Nvidia dropped 2.1%.
High-growth tech stocks are seen as some of the most vulnerable to higher interest rates after they were some of the biggest beneficiaries of the prior ultra-low rate era. —-
AP Business Writers Joe McDonald and Matt Ott contributed.
