Things are a lot calmer this morning for the Japanese government bond market, as it stabilised overnight after a sell-off on Monday morning caused ripples elsewhere. The FTSE 100 is up 0.2 per cent and shares in Paris and Frankfurt are recovering after a hammering yesterday. New York markets ended yesterday’s session down, but futures show this should start turning around later on today.
So what’s going on? It started on Monday when Bank of Japan governor Kazuo Ueda said the central bank could restart interest rate hikes this month. The Asian nation has long had to plotted its own course when it comes to monetary policy, and news of the potential move hit demand for Japanese government bonds, sending prices down and yields up while also hitting the yen and Japanese share prices.
That then spilled over into global markets, partly because the yen is an important funding currency for global traders. But an auction yesterday in Japan went off without a glitch, and things are returning to something like normality. Bitcoin, yesterday’s other risk-off problem having fallen 6 per cent in overnight trading on Sunday, has also stabilised. However, if remarks from Ueda can cause this many ructions, we could see more volatility in debt markets when rates do rise – which always spills over into stock markets.
This morning in London, banks are leading the share price charts after the Bank of England lowered how much capital they need to hold to meet stress tests, meaning some could be freed up and potentially head back to shareholders. Lloyds, Barclays and Standard Chartered are all in the top-five risers list. Housebuilders and Reits are also positive amid good news from Nationwide’s house price index that pricing remained resilient despite demand dropping off ahead of the Budget, while mortgage approvals were steady as well. More on all that here.
On the negative side, miners, who led the charts yesterday, are giving up their gains in a trade that was mainly built on hopes for Chinese fiscal stimulus. With no further news there, enthusiasm has dimmed for now.
By Taha Lokhandwala