Market Summary
Asian markets finished solidly in the red on Tuesday as the sell-off in technology continued following the overnight drop of more than 1% for the Nasdaq. Taiwan’s Taiex was the worst performer in the region due to its large semiconductor industry. Hong Kong’s Hang Seng, which had been one of the best performing markets of 2017, was more than 1% lower on the day as well, with a drop of 3.2% in shares of Tencent contributing heavily to the loss. Even the Nikkei in Japan didn’t avoid a drop, even though the Yen softened against the USD, which usually helps support Japanese equities. Australia’s S&P/ASX 200 ended modestly lower after the Reserve Bank of Australia kept interest rates unchanged at a historic low of 1.50%. The one bright spot was the Kospi in South Korea, which managed a modest gain thanks to strength from its steelmakers.
European markets ended broadly lower with modest losses across the region Tuesday as the selloff in technology continued from the Monday and the Asian session. The losses in technology were more modest today however, and gains from European exporters helped keep the downside muted. Germany’s DAX fell just 0.1%, while the CAC 40 in France lost 0.3% and Spain’s IBEX 35 edged up by 0.03% at the close. In London, the FTSE was 0.2% lower at the close due to weakness from the miners, which fell in response to falling metals prices. There were also concerns from investors over lack of progress in the Brexit negotiations, and poor economic data dampened investor sentiment further. A reading of services sector activity came in well below expectations, which was especially concerning to investors as the services sector makes up roughly 80% of the U.K. economy.
U.S. markets rallied in the morning, with the technology sector rebounding from previous session’s losses. The S&P technology sector was trading up by 1.2% heading into the lunch hour on Wall Street, but an afternoon reversal left the sector with a much smaller 0.2% gain at the close. Furthermore, it was the only one of the eleven S&P sectors to register a gain for the day. As a result all three of the major U.S. benchmark indices ended the day in the red, with the Nasdaq falling 0.2%, while the S&P 500 dropped 0.4% and the Dow Industrials were down 0.5%. The afternoon weakness confirms that profit taking and a rotation into value stocks is continuing, and could through the end of the year as investors lock in profits.
Today’s Assets
EUR/USD
The Euro continued in its recent retreat against the USD on Tuesday, with the pair dropping right to the 1.1800 level intra-day and finding enough support there to bounce higher. A slowdown in Brexit negotiations has hurt both the Euro and the Pound, while the passage of tax reform in the U.S. has strengthened the U.S. dollar. We feel fairly confident that the pair will retest the 1.1800 level today or tomorrow and will break the support there to fall further and test the far stronger support at the 1.1700 level. There remains good news in the Eurozone economy, so that particular support level could hold, but we will probably have to see what kind of language comes from the U.S. Federal Reserve when they meet to set monetary policy on December 12-13.
Cryptocurrencies
Bitcoin continued climbing on Tuesday, closing in on the $12,000 level and hitting a record $200 billion market capitalization briefly before price pulled back in the mid-afternoon. While Bitcoin gained 4.5%, the gains for other major cryptocurrencies were more modest, ranging from 0.4% to 2.4%. Ripple was a different case, as it pulled back by 0.6%. Still enthusiasm for cryptocurrencies remains high, with traders especially looking forward to the start of futures trading in Bitcoin on the CBOE and CME later this month.