Global financial markets witnessed a significant day of action on Friday, December 19, with technology shares powering Wall Street higher and the Bank of Japan (BOJ) making a historic monetary policy shift. The MSCI's global equities gauge advanced, offering a positive end to a volatile week for investors worldwide, including those in India tracking international cues.
Wall Street and Tech Sector Rebound
In the United States, equity markets posted solid gains, driven primarily by a resurgence in technology stocks. The optimism was fueled by a strong financial outlook from memory chip maker Micron Technology, which boosted sentiment around the artificial intelligence (AI) trade. Rosenblatt Securities raised its price target for Micron to $500 from $300 following the company's results, signalling strong confidence.
Michael James, managing director of equity trading at Wedbush Securities, noted, "The return to a more optimistic tone around the AI trade is certainly helping a number of things across the board." He added that while concerns remain, the market sentiment felt markedly better than during most of the preceding week.
By the late afternoon in New York, key indices showed robust gains: the Dow Jones Industrial Average rose 0.61% to 48,245.74, the S&P 500 gained 0.93% to 6,837.72, and the technology-heavy Nasdaq Composite jumped 1.23% to 23,289.13.
Bank of Japan's Historic Move and Currency Impact
In a widely anticipated but momentous decision, the Bank of Japan raised its benchmark interest rate, marking its first hike in over a decade and bringing rates to a three-decade high. The central bank also signalled that further policy tightening could be ahead as it continues to normalize monetary policy.
The immediate market reaction was a sharp sell-off in the Japanese yen. Investors engaged in profit-taking, driving the currency lower. The dollar strengthened 1.29% against the yen to 157.52, approaching levels that analysts suggest could prompt intervention by Japanese authorities to support their currency. The broader U.S. dollar index also rose 0.19%.
In bond markets, the BOJ's move reverberated globally. Japan's 10-year government bond yield hit a 26-year peak. In the U.S., Treasury yields edged higher, with the benchmark 10-year yield rising to 4.151%. The policy divergence between the BOJ's tightening and expectations for eventual rate cuts from the U.S. Federal Reserve remained a key focus for traders.
Commodities and Economic Data
Oil prices settled higher, supported by geopolitical tensions. Traders assessed the risk of supply disruptions following comments from U.S. President Donald Trump regarding Venezuela and awaited developments in the Russia-Ukraine conflict. U.S. crude settled at $56.66 a barrel, up 0.91%, while Brent crude rose 1.09% to $60.47 per barrel.
In precious metals, silver prices soared to a record high, supported by investment demand and tight supply. Spot gold also edged higher, buoyed by expectations that the Federal Reserve may cut interest rates in 2024.
On the economic data front, U.S. existing home sales showed a marginal increase in November, though demand was tempered by economic uncertainty and elevated mortgage rates. A survey of consumer sentiment from the University of Michigan came in lower than estimates but was above the November reading, suggesting the economy might be moving past a soft patch.
Gary Schlossberg, a global strategist at Wells Fargo Investment Institute, commented on recent inflation data, stating, "It looks like inflation may have peaked, at least for now. That has to be good news for the Fed and by extension markets." This outlook provided underlying support for equity market optimism.
For Indian investors and market participants, these global developments are crucial. The strength in U.S. tech shares can influence IT sector valuations domestically, while movements in the dollar-yen pair and U.S. Treasury yields have implications for foreign investment flows and currency management. The overall risk-on sentiment, if sustained, could support emerging market assets, including those in India.
