In a session without relevant economic indicators and little liquidity in the market, major U.S. stock indexes and the overseas dollar closed near flat. The sharp rises in metals this Friday (26), particularly gold, reignited talk of a “devaluation” (sharp devaluation) between G10 currencies, particularly the yen, after the market once again considered Japan’s fiscal health and a consequent flight to safe assets.
The Dow Jones index closed down 0.04%, at 48,710.97 points; and the S&P 500 depreciated by 0.03%, to 6,929.94 points. The Nasdaq fell 0.09% to 23,593.10 points, despite the technology sector rising 0.21%.
In addition to the tight liquidity, the short respite in the markets comes after the S&P 500 renewed its closing record last session. Citi strategists forecast a 7,700 point rise by the end of 2026, based on aggressive earnings growth of $320. An optimistic scenario would bring the US stock market to 8,300 points, while a pessimistic scenario would bring the US stock market to 5,700 points.
“Additional appreciation would be linked to profit growth, accommodative monetary policy from the Federal Reserve (Fed, US central bank) and positive fiscal impulse, factors which would help maintain the current level of valuation,” they argue.
At 6:15 p.m., the DXY index, which measures the performance of the dollar against a basket of six strong currencies, rose 0.09% to 98.02 points. The American exchange rate increased by X% against the yen. On the bond market, the yield on the 2-year T-note fell to 3.491% from 3.514% at the previous close.
The Japanese government today approved a record $782 billion budget for the next fiscal year amid inflationary and fiscal fears in the country. The country’s Finance Minister, Satsuki Katayama, told a news conference that the proposal would keep debt issuance below 30 trillion yen ($190 billion) for the second year in a row, with the debt dependency ratio falling to 24.2%, the lowest since 1998.
Market participants once again discussed a cycle of yen depreciation, given Japan’s fiscal risks, leading to the search for other safe assets, such as gold, which today renewed its all-time closing high of $4,552.7 per troy ounce.
Robin Brooks, former senior foreign exchange strategist at Goldman Sachs, draws attention to the incongruity of the yen’s devaluation at the same time as the Bank of Japan (BoJ) is raising interest rates. “The reason is that the yen depends on long-term interest rates, and these are very low. The harsh reality is that Japanese bond yields are still kept artificially low, and as long as this remains true, the yen will continue its ‘depreciation’ cycle,” he says.
Former Dallas Fed Vice President Jill Cetina also weighed in on the sharp appreciation of metals correlated with “depreciation,” but with a focus on the dollar. “This price movement initiated a negotiation related to the issue of concerns over currency devaluation, resulting from excessive levels of government debt, inflation that remains above the Fed’s target, and the excessive reliance on unconventional monetary policies in several advanced economies,” he says.
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