Dow Soars to Record Heights: A Week of Market Volatility as Interest Rates Climb and Yen Takes a Hit

(closing price on the 20th)
Dollar-yen rate: 1 dollar = 143.85 yen (down 1.22 yen from the previous business day)
Euro-yen exchange rate: 1 euro = 160.59 yen (-1.39 yen)
Euro-dollar exchange rate: 1 euro = 1.1162 dollars (flat)
Dow Jones Industrial Average: $42,063.36 (down $38.17)
Nasdaq Composite Index: 17,948.32 (-65.66)
10-year U.S. Treasury yield: 3.74% (-0.03%)
WTI Crude Oil Futures October Contract: 1 barrel = $71.92 (-$0.03)
December Gold Futures: 1 troy ounce = $2,646.2 (-$31.6)

*△ indicates positive and ▲ indicates negative.

(Major US economic indicators)
None

(Market trends)
・The dollar/yen exchange rate continued to rise. The Bank of Japan announced that it had decided to keep the policy interest rate unchanged at the monetary policy meeting held on the 19th and 20th, as expected by the market. At a press conference after the meeting, Bank of Japan Governor Kazuo Ueda stated, “If the economic and price outlook is realized, we will raise the policy interest rate and adjust the degree of monetary easing.” However, he indicated a somewhat dovish stance in not rushing to raise interest rates, which led to a widespread movement to sell the yen. The yen selling trend continued in the New York market, and at a moment after midnight, it temporarily reached 144.49 yen, its highest level since the 4th. The rise in the yield on the 10-year U.S. Treasury bond, an indicator of U.S. long-term interest rates, to the 3.76% range also supported the market.
However, after the buying spree, the yen struggled to grow. The yen rose sharply from its intraday low of 141.74 yen, which was reached just before the press conference of Bank of Japan Governor Ueda, and this led to selling to adjust positions ahead of the weekend. Federal Reserve Board member Waller said that while “the extent of future rate cuts will depend on the data that is released,” “if the employment market worsens, we may consider cutting interest rates again by 0.50%,” and “if the data becomes weak, the pace of rate cuts may accelerate,” which weighed on the market.

・The euro/dollar exchange rate remained flat. Although it rose to around 1.1177 dollars just before 10 p.m., selling of the euro and buying of the dollar became dominant as long-term U.S. interest rates rose. Just before 12:30 a.m., it temporarily reached a daily low of 1.1136 dollars.
However, the dollar started to be sold off in the wake of the comments by Fed Board member Waller, and the rate recovered to around $1.1176. However, the intraday high of $1.1182 reached during European trading hours and the high of $1.1189 reached immediately after the Federal Open Market Committee (FOMC) meeting on the 18th were seen as resistance, and the rate was weighed down.

・The euro/yen exchange rate continued to rise. Following the Bank of Japan Governor Ueda’s cautious comments on an early interest rate hike, the yen weakened overall. Just before 8:30 p.m., it temporarily hit 161.16 yen, its highest since the 3rd. However, in the New York market, it remained in a range of around 160 yen.
The pound sterling rose to 191.99 yen at one point, the Australian dollar to 98.31 yen, the New Zealand dollar to 89.95 yen, the Canadian dollar to 106.42 yen, and the South African rand to 8.28 yen.

・The Dow Jones Industrial Average in the U.S. stock market continued to rise slightly, hitting a new all-time high. Expectations that a major interest rate cut in the U.S. would support the economy continued to support the market. However, with the weekend approaching, profit-taking selling was likely, and the upside was heavy.
The Nasdaq Composite Index, which has a high proportion of technology stocks, fell. After hitting a record high for the first time in about two months the previous day, investors sold off the stock to lock in profits. The S&P 500 Index, which is used as an index by many institutional investors, also fell.

・The long-term zone of the U.S. bond market fell for the fourth consecutive day. Optimism about the U.S. economy led to bond selling. However, the market hesitated to fall when Fed Board member Waller indicated that “depending on future data, we may consider cutting interest rates by another 0.50%.”

・Crude oil futures prices fell slightly. While there was buying in response to supply concerns due to the worsening situation in the Middle East, buying in anticipation of the economic support effect of the US interest rate cut had run its course, and position adjustment selling before the end of the year trading session suppressed the upside.

Gold futures prices rose for the third consecutive day, hitting a new record high. Buying was driven by speculation that the prospect of an additional FOMC interest rate cut would support the price of gold, an asset that does not generate interest. In addition, the intensification of fighting between Israel and Hezbollah has increased geopolitical risks in the Middle East, which has also boosted demand for gold as a safe asset.

(Nakamura)

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