Diverging US-Japan policy expectations, US stock futures fell, gold and silver retreated, cryptocurrencies rebounded after stopping their decline, and strong auction demand pushed Japanese bonds higher.

Diverging US-Japan policy expectations, US stock futures fell, gold and silver retreated, cryptocurrencies rebounded after stopping their decline, and strong auction demand pushed Japanese bonds higher.

The global market is currently intertwined in a short-term oscillation and recovery, combined with diverging policies from major central banks. On one hand, expectations of Fed rate cuts persist and the probability of Bank of Japan rate hikes has surged; on the other hand, despite Monday’s plunge in cryptocurrencies and weak US manufacturing data sparking risk-off sentiment, asset performance has diverged significantly. US stock futures are under pressure, Japanese government bond prices have risen due to strong auction demand, and cryptocurrencies have rebounded after stopping their decline.

On December 2, tech stocks strengthened and pushed Asian indices up, European stocks showed mixed results, the US dollar and US Treasuries were flat, the yen remained weak, gold and silver pulled back, and oil prices rose.

The market is currently focused on policy shifts of major global central banks. The Federal Reserve will hold its policy meeting on December 12-13, while the Bank of Japan will announce its interest rate decision on December 19.

Against this backdrop, the last 10-year Japanese government bond auction of the year saw demand significantly above the average level of the past year, reflecting markets pricing in policy expectations early. Kristina Hooper, chief market strategist at Man Group, said that since markets expect the Japanese government budget deficit to widen and the Bank of Japan to raise rates again, Japanese government bond yields have “soared all the way” this year, and therefore the Japanese bond market should be closely watched. She said:

“This is crucial, as rising Japanese government bond yields could push up other long-term sovereign bond yields, thereby increasing borrowing costs for some governments that can hardly afford them.”

Key market movements:

US stock index futures all lower, S&P 500 futures and Nasdaq 100 futures down 0.07%, Dow Jones futures down 0.1%Euro Stoxx 50 opens up 0.1%, Germany’s DAX up 0.1%, UK’s FTSE 100 down 0.1%, France’s CAC 40 down 0.1%Nikkei 225 closed almost unchanged at 49,303.45 points. TOPIX closed up 0.1% at 3,341.06 points. South Korea’s KOSPI closed up 1.9% at 3,994.93 points10-year US Treasury yield basically flat at 4.08%; Japanese benchmark 10-year government bond yield fell 2 basis points after the auction to 1.855%US Dollar Index flat at 99.4; yen fell 0.2% against the dollar to 155.76Spot gold fell 0.6% to $4,206.48 per ounce; spot silver pulled back from highs, down over 1.2% to $57.27 per ounceBitcoin rose 0.7% to $87,053.6, and Ethereum price rose 0.5% to $2,806.78

US stock index futures moved lower across the board. Monday’s data shows US manufacturing activity shrank for the fourth straight month in November due to weak orders, with the largest contraction in four months. Ahead of next week’s Federal Reserve policy meeting, officials will refer to their closely watched core inflation indicator—personal consumption expenditures (PCE) price index. This Friday’s report is expected to show inflationary pressures remain stubbornly high.

The market broadly expects policy discussion will focus on labor market conditions. In addition to inflation data, this week will also see the release of November’s ADP private-sector employment report and the preliminary December consumer confidence index, which will provide further clues to the rate path.

Lion Global Investors Singapore senior macro strategist Li Haomin said:

“Given the possibility of another Fed rate cut, and the fact that major governments’ fiscal policies are more supportive of economic growth than expected, we believe the global macro environment will continue to favor investors taking risks.”

Strong demand at the Japanese government bond auction pushed up bond prices. The Japanese benchmark 10-year government bond yield fell 2 basis points to 1.855% after the auction. Japan will auction 30-year government bonds on Thursday.

After posting its biggest weekly gain against the dollar in nearly a week on Monday, the yen weakened, following Bank of Japan Governor Kazuo Ueda’s clearest signal yet that the board may soon raise rates.

Spot silver pulled back from highs, falling over 1.2% to $57.27 per ounce. A key technical indicator shows the six-day rally into Monday pushed silver into overbought territory.

Bitcoin rebounded after stopping its decline. On Monday, another plunge in cryptocurrency prices led to about $1 billion in leveraged positions being liquidated, fueling the massive sell-off.

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