Market Summary
Asian markets got off to a weak start Monday morning, with softness from the Euro and USD weighing on some markets, while potential new financial regulations in China sent markets there plunging. After dropping more than 1% at the open, the Shanghai Composite and Hang Seng both managed to recover, posting gains by the close, but with investors remaining wary over new regulations meant to limit risk in financial trading by closing existing loopholes. Japan’s Nikkei led losses in the region as the Yen strengthened against the Euro and the U.S. dollar. Elsewhere markets saw modest losses, as sentiment across the region remains depressed.
European markets began the day in the red following news that coalition talks in Germany broke down over the weekend, leaving German Chancellor Angela Merkel faced with the prospect of a minority government or a call for snap elections. Ms. Merkel has said she favors new elections over a minority government, even though such elections could potentially take her from her leadership role. The Euro also fell sharply on the news, which turned out to be a positive for equities as the weaker Euro helped lift European export shares, and reversed the early decline in markets. By the close equities across Europe were trading higher, with major indices putting in solid, broad based gains. The U.K.’s FTSE also rose modestly on strength from home building shares, but gains were tempered by a rising Pound in the wake of the German political turmoil.
U.S. markets finished the day broadly higher, with small cap stocks outperforming for a third session in a row. The financial and telecom sectors showed the greatest strength in the S&P 500, but the Russell 2000 clearly outperformed other major benchmark indices. Investor sentiment remains buoyant over the tax reform coming in the U.S., and with corporate earnings remaining strong there is some support for the high valuations in equity markets. While political uncertainties overseas could certainly become an issue, it’s more likely that they will be a help for U.S. markets as capital leaves the uncertainty of Europe and flows into U.S. markets.
Today’s Assets
Cryptocurrencies
The cryptocurrency space saw most major coins rising to new all-time highs on Monday, with Bitcoin once again leading the way higher. The best gains of the day came from the smaller Monero and IOTA coins, but both Litecoin and Ethereum made solid gains alongside the top market cap Bitcoin. While most media reports are focused on Bitcoin and its rise above the $8,000 level, strong gains have been made this month by Ethereum, which has come from a low of $287.07 on November 1st to the Monday high of $370.07 a coin. The gains from Ethereum are somewhat puzzling as there has been no real news for the coin, but the uptrend is strong and remains in place, indicating we could soon see a test of the all-time high near $400.
EUR/USD
The pair was volatile on Monday in response to the political turmoil in Germany, and could continue to see volatility throughout the remainder of the week. At the open the pair gapped lower by roughly 80 pips, opening at the 1.1734 level. It continued briefly lower, but then recovered and began heading higher. After closing the gap and trading briefly above the 1.1800 level the pair hit a wall of resistance that sent it spiraling back to its session lows, where it finished the day nearly unchanged from its opening level. The likelihood of continued uncertainty for Germany will almost certainly continue to put pressure on the Euro, while the increased likelihood of a U.S. interest rate hike next month will lift the U.S. dollar. The two factors combined could see this pair trading back to the support at the 111.00 level soon.