[New York Stock Exchange] Broad Weakness on BOJ Rate Hike Signal... U.S. Treasuries, Stocks, and Bitcoin All Fall

BOJ Governor Ueda Hints at Rate Hike This Month
Concerns Grow Over Unwinding of "Yen Carry Trade"
Global Bond Yields Climb... U.S. 10-Year Up 5bp
Bitcoin Plunges to $83,000 Range During Session

On the first trading day of December, all three major U.S. stock indexes closed lower. The Bank of Japan's (BOJ) announcement of a possible rate hike this month pushed up yields on U.S. Treasuries and global bonds, dampening investor sentiment. Risk aversion was evident as major risk assets, including Bitcoin, plunged by more than 5%.

On the 1st (local time), a trader is working on the trading floor of the New York Stock Exchange (NYSE) in the United States. Photo by Reuters Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 47,289.33, down 427.09 points (0.9%) from the previous session. The S&P 500, which focuses on large-cap stocks, ended at 6,812.63, down 36.46 points (0.53%), while the tech-heavy Nasdaq Composite finished at 23,275.922, a decrease of 89.763 points (0.38%).

Prices of cryptocurrencies, including Bitcoin, fell sharply across the board. According to CoinMarketCap, a global cryptocurrency data site, as of now, Bitcoin is trading at $86,061.11, down 5.49% from the previous session. Bitcoin has remained sluggish since the $90,000 level was breached for the first time since April this year. At one point during the session, it dropped into the $83,000 range. Ethereum also fell 7.8% from the previous day, currently trading at $2,783.1. Bloomberg reported that the sharp declines in major cryptocurrencies such as Bitcoin and Ethereum led to the forced liquidation of leveraged positions worth about $1 billion (approximately 1.47 trillion won) in a single day.

Hints of a possible rate hike from BOJ Governor Kazuo Ueda rattled the global bond market and put pressure on equities. At an event on this day, Governor Ueda suggested a policy shift, saying, "After reviewing the pros and cons of a rate hike (this month), we will make an appropriate decision." He explained that since real interest rates remain low, any rate hike would be an adjustment to the degree of monetary easing.

Given that the BOJ is a major pillar of global liquidity supply, concerns are growing in the market about the unwinding of the "yen carry trade," where investors borrow low-interest yen to invest in high-yield overseas assets.

The global government bond market reacted immediately. The yield on Japan's two-year government bond soared to its highest level since 2008 following Governor Ueda's remarks. The yield on the U.S. 10-year Treasury note, the global benchmark, rose 5 basis points (1bp=0.01 percentage point) from the previous session to 4.09%. The yield on the U.S. two-year Treasury, which is sensitive to monetary policy, rose 4 basis points to 3.53%.

Matt Miskin, Co-Chief Investment Strategist at Manulife John Hancock Investments, analyzed, "After the BOJ sent a hawkish signal to prepare for a December rate hike, the global bond market is feeling the butterfly effect."

Alexandre Baradez, Chief Market Analyst at IG, assessed, "This is a structural change in the global market that investors will have to adapt to."

However, the possibility of a rate cut by the U.S. Federal Reserve (Fed) in December is acting as a positive factor for the stock market. According to CME FedWatch, the interest rate futures market is currently reflecting an 87.6% probability that the Fed will cut its benchmark rate, currently at 3.75-4.0% per annum, by 0.25 percentage points this month. The fact that Kevin Hassett, a member of the White House National Economic Council (NEC), is being mentioned as a possible successor to Jerome Powell, whose term as Fed Chair expires in May next year, and is expected to align with President Donald Trump's rate-cutting stance, is also raising market expectations for monetary easing.

Wall Street's outlook is divided on how the market will perform in December, after a volatile November marked by debates over an artificial intelligence (AI) bubble and optimism.

Mark Newton, Technical Strategist at Fundstrat, said, "After overcoming difficulties at the beginning of November, the market rebounded, and we are taking a more constructive view for December," adding, "As the likelihood of a December rate cut increases, the stock market appears to be stabilizing further."

Market analysis firm Stock Trader's Almanac explained that the S&P 500 has a seasonal tendency to rise by more than 1% on average in December.

On the other hand, Ipek Ozkardeskaya, Senior Analyst at Swissquote, predicted, "December could be more difficult than many expect, especially for those who saw last month's decline as a long-awaited correction phase," adding, "With the interest rate futures market now pricing in a 90% probability of a 0.25 percentage point Fed rate cut next month, there may not be many additional dovish catalysts."

By stock, Broadcom fell 4.19%. Super Micro Computer dropped 1.3%. Nvidia, which decided to invest $2 billion (about 2.93 trillion won) in Synopsys, a semiconductor software design company, rose 1.66%, and Synopsys jumped 4.85%. Coupang, which suffered a massive data breach, plunged 5.36%.