Global Commentary
Asian markets were broadly higher on Monday, although many did finish off their session highs following weaker than expected inflation data from China. That data also sent the Shanghai Composite lower, making it the only falling market in the region on Monday. Japan’s Nikkei was supported by a softer Yen, leading to another 21-year high for the Japanese benchmark index. In Australia, the S&P/ASX 200 is approaching a 9-year high as firming metals prices gave the index a boost. Markets across Asia were also supported by the soft inflation data out of the U.S. last Friday, which gave hopes of a delayed interest rate hike scenario for the U.S.
European markets were mostly higher on Monday, but a loss in the Spanish IBEX 35 brought on by worries over Catalan secession plans weighed on the broadest European indices. Germany’s DAX hit a new record as it closed above the 13,000 level for the first time ever. Spain could be looking at an extended period of turbulence after Madrid gave the Catalan president until Thursday at 10am local time to drop the bid for independence. If a response is not received by then it will open the door for Madrid to invoke Article 155 of the Spanish Constitution and take control of Catalonia. In London, the FTSE edged lower, even though mining shares performed well and the Pound softened against rival currencies.
U.S. markets moved broadly higher, once again scoring new record closing highs as investor confidence remains high heading into earnings season. Investors are expecting solid earnings results that will justify the current high levels in equity markets and so far they haven’t been too disappointed. Volatility could begin to pick up however as we get deeper into earnings season as the markets try to digest hundreds of daily earnings releases.
FOREX
EUR/USD
The pair eased lower for a third consecutive session Monday, settling below the 1.1800 level as concerns over rising political risks in Spain have caused additional caution among traders. With Madrid giving the Catalan separatists until Thursday at 10am local time to abandon their independence initiative we could see further pressure on the pair leading up to that deadline.
USD/JPY
Japanese traders reversed the losses seen from this pair last Friday, with the pair gapping 30 pips higher at the open, and continuing higher to end back above the 112.00 level. It is possible we could see the pair trading in a fairly tight range over the next week as traders become increasingly cautious ahead of the Japanese snap general election.
Cryptocurrencies
The cryptocurrency market remained mostly in bull mode, although some of the major coins saw declines by the end of Monday’s session. Specifically, Ethereum saw a slight decline, while Ripple and DASH both fell more substantially, though both are seeing support levels hold. Capital continues to flow into Bitcoin, and this could define the cryptocurrency space until the SegWit2x hard fork occurs in mid-November.
Commodities
Metals
Precious metals fell slightly on Monday as investors remain cautious over the course of interest rate hikes in the U.S., and in response to some modest strength in the U.S. dollar. Gold settled lower by just 0.1%, remaining above the $1,300 level. Friday saw weak inflation data released in the U.S, but Sunday the Fed chairwoman reiterated that low inflation won’t keep the Fed from making the right decision regarding interest rate hikes. The conflicting information has traders cautious, and could keep precious metals trapped in a tight band until further data becomes available.
Oil
Crude gained on Monday, reaching a three week high as geopolitical tensions in the Middle East escalated. Traders already have the potential for the U.S. to withdraw from the Iran nuclear deal as one risk factor, but on Monday Iraqi forces moved north into Kirkuk, a region held by Kurdish separatists, and also a major oil producing region. Worries over potential disruptions to production lifted crude prices.
Indices
Dow Industrials
The Dow added 0.37% on Monday, making it the best performing major index and taking it nearly to the 23,000 level for the first time ever. While it didn’t reach that lofty height yet, it still closed at a new record high as financial and technology shares led the way higher. With earnings season expected to be healthy for the market the 23,000 level probably won’t take long to reach.
IBEX 35
Spain’s benchmark index turned lower Monday as investors worried about prolonged political turmoil in the Catalan region of Spain. The worries came as Madrid issued an ultimatum to Catalonia’s president to drop the push for independence or face the loss of home rule under Article 155 of the Spanish Constitution. Such a move would surely anger the more radical supporters of independence, leading to more demonstrations and potential clashes in the streets of Barcelona.
Stocks
IBM (NYSE:IBM)
IBM will be one of the first big technology companies to report third quarter earnings as they report after the bell Tuesday. It is expected that the company will once again report declining quarterly revenues, but an increase in earnings per share as it continues to move away from its traditionally hardware and software based business to a services and cloud based business model. While a case can be made for improvement at IBM, it is coming slowly, as you would expect at such a large company. Still, on a longer term chart one can see that the stock could be moving into an uptrend, although a break above the $182.79 high from the beginning of 2017 would be needed to confirm that.