Market Commentary: Wednesday 31st July

Well, well, well, the BoJ has hiked its benchmark interest rate to 0.25% and has outlined a plan to halve its monthly bond purchases in a decisive move to tighten monetary policy. They voted 7-2 to raise rates to the highest level since the global financial crisis in 2008. Does this mean the carry trade is over? Governor Ueda’s press conference starts at 15:30 Tokyo time. Will he turn hawkish? They are clearly not paying attention to actual economic data, which has shown weakness. When will they go to 0.5%?

Equity markets have reacted positively, with the Nikkei up 1.6%, the Hang Seng up 2.1%, and the CSI up 2.16%. Elsewhere, the Australian dollar fell, and short-term bonds rallied after core inflation unexpectedly decelerated last quarter, prompting traders to boost bets on an interest rate cut by the RBA. So it is now over to the Fed. Is it about to begin a rate-cutting cycle? Stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 has risen an average of 5% a year after the first cut, according to calculations by financial research firm CFRA. The Fed announces their decision at 7 pm BST.

In other markets, Bitcoin fell 0.3% to $65,983.01, Ether rose 0.2% to $3,288.75, the yield on 10-year Treasuries was little changed at 4.14%, but Japan’s 10-year yield advanced 6.5 basis points to 1.060%, while Australia’s 10-year yield declined 16 basis points to 4.12%. In commodities, West Texas Intermediate crude rose 1.9% to $76.14 a barrel, and spot gold rose 0.3% to $2,418.60 an ounce.

Data-wise, we have Eurozone CPI and US ADP employment change. After Ueda's press conference, it will all be about the Fed and a little bit of month-end. Have a great day.

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