Divergence in policy expectations between the US and Japan leads to a decline in US stock futures, a pullback in gold and silver, a rebound in cryptocurrencies, and strong auction demand pushing up Japanese bonds

The global market is currently caught in a short-term oscillation and repair phase, intertwined with the divergent policies of major central banks. On one hand, expectations for interest rate cuts by the Federal Reserve continue, while the probability of rate hikes by the Bank of Japan has surged; on the other hand, despite the sharp decline in cryptocurrencies on Monday and weak U.S. manufacturing data triggering risk-averse sentiment, asset performance has shown significant divergence, U.S. stock futures are under pressure, Japanese government bonds are rising due to strong auction demand, and cryptocurrencies have rebounded from their lows.

On December 2, technology stocks drove Asian indices higher, European indices were mixed, the U.S. dollar and U.S. Treasuries remained flat, the yen remained weak, gold and silver retreated, and crude oil rose.

The market is currently focused on the policy directions of major global central banks. The Federal Reserve will hold its monetary policy meeting from December 12 to 13, and the Bank of Japan will announce its interest rate decision on December 19.

In this context, the demand for the last 10-year Japanese government bond auction of the year was significantly higher than the average level of the past year, as the market is reacting in advance to policy expectations. Kristina Hooper, Chief Market Strategist at Man Group, stated that due to market expectations of an expanding budget deficit for the Japanese government and another rate hike by the Bank of Japan, Japanese government bond yields have "soared" this year, thus it is essential to closely monitor the trends in Japanese government bonds. She said:

"This is crucial because rising Japanese government bond yields could push up the yields of other long-term sovereign bonds, thereby increasing borrowing costs that some governments can hardly bear."

Core market trends are as follows:

• U.S. stock index futures collectively fell, with S&P 500 futures and Nasdaq 100 futures down 0.07%, and Dow futures down 0.1%
• The Euro Stoxx 50 index opened up 0.1%, Germany's DAX index rose 0.1%, the UK's FTSE 100 index fell 0.1%, and France's CAC 40 index fell 0.1%
• The Nikkei 225 index closed nearly unchanged at 49,303.45 points. The Tokyo Stock Exchange index fell 0.1% to 3,341.06 points. The Seoul Composite Index closed up 1.9% at 3,994.93 points
• The 10-year U.S. Treasury yield was basically flat at 4.08%; the benchmark 10-year Japanese government bond yield fell 2 basis points to 1.855% after the auction
• The U.S. dollar index was basically flat at 99.4; the yen fell 0.2% against the dollar to 155.76
• Spot gold fell 0.6% to $4,206.48 per ounce; spot silver retreated from highs, down over 1.2% to $57.27 per ounce
• Bitcoin rose 0.7% to $87,053.6, and Ethereum rose 0.5% to $2,806.78

U.S. stock index futures collectively fell. Data on Monday showed that U.S. manufacturing activity contracted for the fourth consecutive month in November due to weak orders, with the contraction being the largest in four months. Ahead of the Federal Reserve's policy meeting next week, officials will reference the core inflation indicator they focus on, the Personal Consumption Expenditures (PCE) price index data. The report expected to be released this Friday is anticipated to show that inflation pressures remain stubborn The market generally expects that the focus of policy discussions will be on the labor market conditions. In addition to inflation data, the November ADP private sector employment report and the preliminary consumer confidence index for December will be released this week, providing further clues for the interest rate path.

Li Haomin, Senior Macro Strategist at Rongao Bank Singapore, stated:

"Given that the Federal Reserve may cut interest rates again, and the fiscal policies adopted by major governments are more favorable to economic growth than expected, we believe the global macroeconomic environment will continue to favor investors taking on risk."

Demand for Japanese government bonds was strong, driving bond prices higher. The yield on Japan's benchmark 10-year government bonds fell by 2 basis points to 1.855% after the auction. Japan will auction 30-year government bonds on Thursday.

The yen weakened after reaching its largest gain against the dollar in nearly a week on Monday, following the most explicit signal yet from Bank of Japan Governor Ueda Kazuhiro, suggesting that the central bank's board may raise interest rates soon.

Spot silver retreated from its highs, falling over 1.2% to $57.27 per ounce. A key technical indicator showed that the six-day rally leading up to Monday had pushed silver into overbought territory.

Bitcoin rebounded after a decline. On Monday, cryptocurrency prices plummeted again, leading to nearly $1 billion in leveraged cryptocurrency positions being liquidated, fueling a massive sell-off.

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