The Bank of Japan’s governor, nearing the end of a decade in office, gave markets one more surprise on Tuesday in the form of an interest-rate increase that he said wasn’t really an increase. It capped an event-filled year for developed-world central bankers in which the Federal Reserve lifted its benchmark rate above 4% and the European Central Bank moved up to 2%. The inflationary forces that pushed the U.S. into rapid clampdown mode proved so powerful that even Japan’s central bank, which long stuck to near-zero rates, felt it had to budge - in part to protect the value of the yen, analysts said. The Bank of Japan said it would let the yield on the 10-year Japanese government bond, which it has kept under its control since 2016, rise as high as 0.5% from a previous cap of 0.25%. The bank’s governor, 78-year-old Haruhiko Kuroda, is set to complete his second five-year term next April, and he is expected to step down although there has been no official announcement. Tuesday’s sudden move recalled some of Mr. Kuroda’s greatest hits - the “bazooka” of government-bond purchases in 2013 that helped stem Japan’s chronic deflation and the introduction of negative short-term interest rates in 2016.

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The Swiss stock market edged significantly lower on Tuesday. The SMI lost 1.1 per cent to 10,659 points. Among the 20 SMI stocks, there were 18 price losers and two price winners. 46.96 (previously: 35.56) million shares were traded. The losses were spread across all sectors. Only Swiss Re (+0.1%) and Swisscom (+0.6%) escaped the negative trend. The defensive index heavyweights Novartis, Roche and Nestle also slipped by up to 1.4 per cent. Corporate news, on the other hand, was scarce again. Shares in SIG Group fell by 3.8 per cent. The company has to look for a new CFO. Frank Herzog is leaving the company for personal reasons. Sika declined by 2.2 per cent. The specialty chemicals company is opening a new production facility for liquid membranes and mortar products in China.

European stocks were down on Tuesday on concerns about recession risk and higher interest rates, exacerbated by the Bank of Japan tweaking its yield-curve program. The Stoxx Europe 600 index shed 0.4% at 424.2 points. In Paris, the CAC 40 and the SBF 120 both declined by 0.4%. In Frankfurt, the DAX 40 also gave up 0.4%, while the FTSE 100 in London gained 0.1%. Engie shares slipped 3.3%. The energy supplier warned that legislation passed in several European Union countries to limit inframarginal rent from electricity prices would impact its results in 2022 and 2023 but confirmed its targets for the current year. Elior (+3.9%) edged higher after the catering group announced its plan to acquire the multiservice branch of Derichebourg (-1.6%) as part of a transaction that would allow the industrial metals recycling specialist to double its stake in the capital of the catering group. Orange's (-1%) chief financial officer, Ramon Fernandez, will leave the telecoms operator at the end of the first quarter of next year to join the shipping and logistics group CMA CGM in the same position. Irish airline Ryanair (-2.5%) announced on Tuesday that it had signed a four-year agreement with Irish pilots' union Forsa providing regarding pay rises and restoration of wages that had been cut during the health crisis.

U.S. stock indexes and bond yields rose after the Bank of Japan surprised investors by raising the cap on a benchmark rate, inching away from its ultrarelaxed monetary policies. The S&P 500 added 3.96 points, or 0.1%, to 3821.62, on Tuesday. The Nasdaq Composite rose 1.08 points, or less than 0.1%, to 10547.11. The Dow Jones Industrial Average gained 92.20 points, or 0.3%, to 32849.74. In stocks, Tesla shares fell $12.07, or more than 8%, to $137.80, with its market capitalization slipping below that of Johnson & Johnson for the first time since late 2020, according to Dow Jones Market Data. Several analysts have cut their price targets on Tesla stock in recent days. Tech stocks such as Tesla are particularly sensitive to interest rates and have been some of the biggest drivers of this year’s roughly 20% decline in the S&P 500. Shares of General Mills fell $3.99, or 4.6%, to $83.13. The food maker boosted its fiscal-year outlook, but pet-food sales were lower than Wall Street expected. The European Commission announced on Tuesday that it was opening an in-depth investigation into the proposed acquisition of VMware (-0.2% to USD 120.60) by US integrated circuit maker Broadcom (-1%), stating that the deal could limit competition in the market for certain hardware components. The new budget bill under discussion in the US Congress provides for Boeing (+1.4%) to be granted additional time to upgrade the alarm systems on board its aircraft, which should facilitate the approval of two new versions of the 737 Max. Automotive supplier Magna International (-1.9%) announced on Tuesday that it had acquired the Active Safety division of Sweden's Veoneer for $1.53bn in cash. Property developers were held back by the announcement of an 11% fall in the number of building permits issued in November in the US residential market. Housing starts fell 0.5% last month. Lennar lost 1.2% and DR Horton lost 0.5%. KB Home, on the other hand, recovered during the session, gaining 0.3%.

Asian stocks were mixed on Wednesday. After uninspiring signals from Wall Street, the indices in China hardly move from the spot, and there is also little activity in Seoul. In Tokyo, the Nikkei 225 index slipped a further 0.8 per cent to 26,364 points after the previous day's slide, weighed down by the fact that the Japanese central bank has made a small swing towards tightening regarding its ultra-expansive monetary policy. Mitsubishi UFJ Financial Group gained over 7 per cent and Sumitomo Mitsui Financial Group over 5 per cent.

Ten- and 30-year U.S. government debt yields jumped for a third straight session on Tuesday after policy shift by the Bank of Japan sparked a selloff in government debt, prompting analysts to speculate that the central bank may give up its role as last-remaining low-rate anchor. On Tuesday, Japan's 10-year government bond yield climbed 16 basis points to 0.418% after the BOJ's decision. On Wednesday, Japan's 10-year government bond yield rose further to 0.47 per cent and has thus practically already reached the upper edge of the extended band at 0.5 per cent. In the US bond market, the 10-year Treasury note rose 11 basis points to 3.692%. The 2-year Treasury note added 7 basis points to 4.270%.

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