Dollar Returns, Central Banks Signal Caution, Capital Seeks Safety

Markets last week were driven by policy ambiguity.

The Bank of Japan's dovish hold and the Federal Reserve's divided tone together reignited a flight back to safety toward the U.S. dollar, short-term bonds, and defensive sectors.

BOJ's Disappointment Deepens Yen Weakness

The BOJ kept its policy rate unchanged at 0.5%, despite Tokyo's core inflation remaining above 2%. Governor Ueda's comment that "normalization will take time" dashed hopes for a hawkish signal. The yen tumbled 4.2% for the month, its worst performance since July, as Finance Minister Katayama's verbal intervention did little to stem the slide. With new Prime Minister Sanae Takaichi expected to pursue aggressive fiscal expansion, Japan's monetary credibility is again under strain.

Fed's Mixed Message and the "Shorter Duration" Twist

While the Fed cut rates as expected, three officials dissented, reflecting a growing policy divide within the committee.
Cleveland's Hammack, Dallas's Logan, and Atlanta's Bostic all voiced concern that inflation remains too high.
As a result, December rate-cut odds plunged from 93% to 63%, and the 10-year yield climbed back to 4.08%.

Powell's mention of a "shorter-duration balance sheet" implied the Fed's intent to shift toward T-bills over long Treasuries, potentially tightening long-end supply and adding upward pressure on yields. A subtle move and a powerful signal that cooled the market's dovish optimism.

Corporate Earnings Solid but Capped by Policy Uncertainty

Despite central-bank confusion, corporate America continues to deliver.

83% of S&P 500 firms beat estimates, led by Amazon's 9.6% rally on strong cloud growth and Apple's solid holiday-quarter guidance.
Yet, the Fed's cautious tone capped enthusiasm, forcing investors to weigh earnings momentum against macro hesitation.

Our Analysis – Institutional Rotation in Motion

According to TradePulse Power Inflow data (Oct 31):

Taken together, the data point to selective tech buying and defensive rotation. A clear pattern of risk moderation rather than renewed risk-taking.

A Market Seeking Clarity, Not Conviction

"The BOJ disappointed. The Fed hesitated. And capital quietly migrated back to where certainty still exists. The dollar, short-term bonds, and defensives."

Institutional investors are not abandoning risk, but they are recalibrating exposure toward sectors with clearer earnings visibility and lower duration sensitivity.

TradePulse will continue monitoring these reallocation signals ahead of Japan's upcoming wage data, both likely to dictate how long this "policy trust deficit" will last.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.