Asian markets were mostly lower on Thursday as investors readjusted portfolios based on the latest Federal Reserve monetary policy, the likelihood of another U.S. interest rate hike this year, and a strengthening U.S. dollar. Australian markets came under heavy selling pressure as commodity prices fell in response to USD strength. Japan’s Nikkei outperformed and now just 2% short of 21-year high, as the Bank of Japan stood firm on monetary policy
European markets turned broadly higher Thursday, led by gains from the banking sector as investors were moved by the hawkish tone of the Federal Reserve monetary policy statement, which indicated the U.S. is ready to raise interest rates one more time in 2017. With the Fed meeting now out of the way, the next big event will be the German Federal Elections, slated for this Sunday. Current German chancellor Angela Merkel is widely expected to win the election and serve her fourth term, with current odds near 100% for her winning, and markets haven’t put much weight on other possibilities. One thing that isn’t certain is whom Merkel will choose as her coalition partner, and while this could have far reaching implications for Germany, the EU, and the Euro, markets will likely have little response in the short-term. One wild-card would be for a coalition with the Free Democratic Party, which would be pro-business and could spark a rally in the financial sector.
U.S. markets opened flat, but by noon had turned lower as investors fretted over the possibility of another interest rate hike in December. The major indices were broadly lower at the close, with the Dow snapping a nine session winning streak and all three of the major indices coming off record levels. The worst losses were seen from the technology sector, which has been struggling of late, and from the consumer staples sector. As the days’ losses were fairly modest we believe there could be a rebound Friday, although there is little planned news that could act as a catalyst.
FOREX
EUR/USD
The pair rebounded on Thursday, trading back above the 1.1900 level as the USD weakened broadly against rival currencies. Friday could see some choppy trade in the pair, as traders will be looking ahead to the German Federal Elections, and even though the outcome is virtually guaranteed, there is likely to be some tone of caution in trader sentiment over the Euro heading into such an important event.
USD/CAD
After rising for four consecutive sessions, the pair took a breather on Thursday, likely in response to the flat finish for crude, and in response to caution from traders ahead of Friday’s economic data due from Canada.
Cryptocurrencies
After consolidating for several days the cryptocurrency market saw more selling pressure on Thursday. Bitcoin ended the day 6.2% lower, while Ethereum and Litecoin were down 8.1% and 8.3% respectively. All three were stabilizing again after markets closed in the U.S. The catalyst for the drop was news from China that BTCChina Exchange would be closing on September 30.
Commodities
Metals
Precious metals retreated on Thursday, with gold settling under $1,300, its lowest level in a month, as traders sold gold in response to the Fed’s signaling a further interest rate hike in December. The move shows that the recent rally was not the tensions caused by North Korea, but instead, traders betting on U.S. interest rates remaining lower for longer. Now that this no longer appears to be the case we could see a long slide in the precious metals space.
Oil
Crude was mixed on Thursday, with the WTI crude falling slightly and the Brent crude rising slightly. Prices rose to a nearly five months high in the previous session, so the flat finish can be seen as consolidation in the market as traders look to OPEC to extend a production cut agreement. There was also data showing U.S. refineries are returning to full capacity, which should help alleviate some of the inventory build-up that followed hurricane Harvey.
Indices
Nasdaq
The Nasdaq underperformed Thursday as falling technology and healthcare stocks pulled the index lower. With rumblings of additional taxation and potential anti-trust claims against the largest tech companies such as Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB), technology has come under pressure and could remain that way in the coming days and weeks.
Stocks
Microsoft (NASDAQ:MSFT)
The return of Microsoft stock has been somewhat surprising. After it languished around $25 per share for over a decade, it turned higher in 2012 and hasn’t looked back since, rewarding investors with a 200% return over the past five years, and still climbing steadily higher. What was once a highflying tech stock has morphed into a solid, dividend-paying growth company. For that reason, Microsoft should be looked at anytime there is a dip in the price, as it has rebounded quickly from such over the past five years, and promises to continue doing so for the foreseeable future.