BOJ’s Hawkish Shift Sparks Liquidity Fears; U.S. Equities Start December in the Red

Market Overview

The Bank of Japan‘s unexpectedly hawkish rhetoric triggered renewed concerns over global liquidity tightening, while a weaker-than-expected U.S. ISM Manufacturing PMI further dampened risk sentiment. U.S. equities opened December on a bearish note, ending the S&P 500’s five-day winning streak as investors rotated out of high-beta sectors.

On the corporate front, NVIDIA announced a strategic equity stake in EDA leader Synopsys, sending their shares up 1.7% and 4.9%, respectively. Chinese ADRs outperformed the broader market, with the Nasdaq Golden Dragon China Index rising nearly 1% and Alibaba surging 4.4%.

In fixed income, Japanese government bonds declined sharply and spilled over into global bond markets. U.S. long-duration Treasuries faced broad-based selling, pushing 10-year and 20-year yields higher by more than 7 bps. FX volatility intensified as the yen briefly strengthened nearly 1%, while the U.S. Dollar Index initially broke below the 99 level before rebounding.

Crypto markets saw heavy liquidations, with Bitcoin tumbling more than 8% intraday to below $84,000 and Ethereum sliding over 10%. Commodities were mixed: gold gained 0.3%, while silver surged 2.67% to $58, marking yet another all-time high.

Key Themes Ahead● Japans “Double Sell-Off” in Stocks and Bonds

BOJ Governor Kazuo Ueda stated that the central bank will “consider a rate hike” and “make an appropriate decision” at the December meeting. He emphasized that if the economic outlook materializes as expected, tightening would follow, and that rates could be raised to around 0.75% before laying out further guidance. The upcoming spring wage negotiations remain a critical inflection point.

Despite the hawkish tone, Ueda reiterated that Japans overall financial conditions would remain accommodative even after a hike. Japanese equities and government bonds both declined following his remarks.

● Further Contraction in Employment Indicators

The U.S. ISM Manufacturing PMI for November came in at 48.2, missing expectations of 49 and down from the prior reading of 48.7. The index has now remained below the 50 expansion-contraction threshold for nine consecutive months, signaling a prolonged manufacturing downturn.

New orders contracted at the fastest pace since July, reflecting persistent weakness in demand. This, in turn, contributed to a sharper decline in factory employment. The prices-paid index rose for the first time in five months, while the production index expanded at its fastest pace in four months.

Events to Watch (GMT+8)

18:00 EU – Eurozone November CPI (YoY, Flash Estimate)

23:00 US – Federal Reserve Governor Michelle Bowman Testimony before the Financial Services Committee