Nikkei 225 falls in response to BOJ's cautionary shift

Asian markets wobble on China woes

By Nadia Elbilassy | @Nadia Elbilassy | 7 December 2023

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  • U.S. dollar slightly declined in early European trade but remained near a two-week high, with the Dollar Index showing a 0.3% decrease.

  • Germany's factory orders declined (-3.7%) in October, contributing to concerns about a Eurozone recession, placing downward pressure on the euro.

  • Bank of Japan Governor Kazuo Ueda hints at a potential shift from the ultra-accommodative stance.

On the Market Watch!

The dollar

In the early European trading session on Wednesday, the U.S. dollar slightly declined but stayed close to a two-week high as investors awaited crucial employment data. The Dollar Index, which measures the dollar against six other major currencies, showed a 0.3% decrease, trading at 103.925 after a 0.3% increase overnight.

This month, the index has risen by 0.5%, recovering from a steep 3% decline in November, marking its most significant monthly drop in a year.

Market participants appear to be adopting a more cautious approach as we approach the release of crucial U.S. payroll figures on Friday and the upcoming Federal Reserve meeting next week. There is a significant likelihood that the Federal Open Market Committee (FOMC) may push back against expectations for a rate cut.

Germany factory orders

The euro traded near a three-week low after Germany factory orders declined further in October to the negative territory by (-3.7%) vs 0.2 expected and 0.7% previous.

The Eurozone appears to be facing the inevitable prospect of a recession, and this sentiment is exerting significant downward pressure on the euro. The European Central Bank (ECB) is also grappling with limited options regarding interest rates, as the economy remains constrained, contributing to the overall challenging economic environment.

In fact, markets are pricing in a rate cut by the ECB in March 2024.

The Nikkei 225

Moody's recent downgrade has extended a series of setbacks in Asian markets, with the Nikkei 225 experiencing an early morning decline of nearly 2%.

The Nikkei was mainly affected by Bank of Japan Governor Kazuo Ueda latest statements on providing additional signals suggesting a possible shift away from the central bank's extremely accommodative stance.