Nikkei 225 falls more than 2% after Bank of Japan widens yield target range, yen strengthens

Oil prices could also reach as high as $121 on a full China reopening, S&P forecasted, adding that prices are poised to settle at $90 per barrel for 2023.

Prices of oil will likely see “one big boost” from a full China reopening to $121 per barrel, almost touching the highs in March following Russia’s invasion of Ukraine, said S&P’s Vice Chairman Dan Yergin.

He added that the rise in prices will be fueled by strains caused by an underinvestment currently observed in oil and gas, Yergin added.

“Our base case for 2023 is $90 for Brent but you have to look at other cases,” he said, adding that the outlook for oil is primarily clouded by three uncertainties — more hikes from the Fed, China’s demand, and Russia’s reaction to the price cap on its oil agreed by the European Union.

—Lee Ying Shan

The Bank of Japan held its benchmark interest rates steady and announced it will modify its yield curve control band, the central bank said in a statement.

The BOJ will expand the range of 10-year Japan government bond yield fluctuations from its current plus and minus 0.25 percentage points to plus and minus 0.5 percentage points, it said.

The adjustment is intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions,” the BOJ said.

The Japanese yen strengthened more than 2% to stand at 133.37 against the U.S. dollar after the announcement.

– Jihye Lee

Minutes from the Reserve Bank of Australia’s December meeting showed that the central bank had considered a number of options for its cash rate decision, including a complete pause in hikes.

“The Board considered several options for the cash rate decision at the December meeting: a 50 basis point increase; a 25 basis point increase; or no change in the cash rate,” the minutes said.

RBA board members also noted the importance of “acting consistently,” adding that the central bank will continue to consider a range of options for the upcoming year as well.

– Jihye Lee

The People’s Bank of China kept its one-year and five-year loan prime rates unchanged in December, according to an announcement.

The central bank maintained its one-year loan prime rate at 3.65% and its five-year loan prime rate at 4.30%, in line with expectations in a Reuters poll.

The offshore and onshore Chinese yuan were relatively flat at 6.9808 and 6.9783 against the U.S. dollar, respectively.

– Jihye Lee

What’s next for China after it rolled back a slew of Covid-19 measures?

Market pros weigh in on the prospect of a rebound in the world’s second-largest economy and reveal opportunities for investors.

CNBC Pro subscribers can read more here.

— Zavier Ong

The Bank of Japan is expected to keep its interest rates steady at -0.10%, according to survey of economists by Reuters.

The rate decision is expected after the central bank’s two-day monetary policy concludes Tuesday.

Separately, Japan’s government and the BOJ are reportedly aiming revise a statement committing to a 2% inflation target at the earliest possible date, according to Kyodo News, citing government sources.

— Jihye Lee

The Federal Reserve is likely overdoing it’s rate hikes to tame inflation and could end up tipping the U.S. economy into a recession, Ed Hyman of Evercore ISI wrote in a Sunday note.

The Federal Funds rate is now 6.5% versus a core PCE of 4.7% on the year and bond yields at 3.5%, Hyman wrote.

“And it’s not just the Fed tightening: ECB, BoE, Mexico, Switzerland, and Norway also tightened last week,” he said. “Perhaps more profoundly, the money supply is contracting.”

In addition, Evercore’s economic diffusion index is approaching recession territory along with other indicators such as company surveys, inflation data and layoff announcements. And, wage gains have started to slow and high rents are showing early signs of easing, signaling that inflation has likely run its course.

“In any event, 87 percent of American voters are concerned about a recession,” said Hyman.

—Carmen Reinicke

The S&P 500 has dropped more than 6% this month, as Wall Street struggles heading into year-end. That puts in on track for its worst monthly performance since September. It would also be its biggest December decline since 2018, when it slid 9.18%.

Recession fears and dashed hopes of a year-end rally weighed on stocks Monday, sending them to the fourth consecutive negative close.

The Dow Jones Industrial Average shed 163.85 points, or 0.50%, to close at 32,756.61. The S&P 500 fell 0.91% to 3,817.47, and the Nasdaq Composite shed 1.49%to 10,546.03 weighed down by shares of Amazon, which slipped 3%.

—Carmen Reinicke