Asian markets ended mixed on Monday, primarily reacting to domestic issues as investors across the region shrugged off the weekend results of the German Federal Election. Japan’s Nikkei outperformed, gaining 0.50% as the Yen remains soft against the USD. After the close of markets, Prime Minister Shinzo Abe called for snap general elections, saying he would dissolve Parliament on September 28, but not giving a date for the actual vote. In Australia the S&P/ASX 200 gave up early gains to finish nearly flat. China’s share market underperformed after Beijing imposed new controls on the real estate sector.
European markets edged higher as a weaker Euro helped offset concerns over potential EU turbulence caused by the weekend German Federal Elections. While Angela Merkel won a fourth term as expected, she garnered fewer votes than in previous elections, and the 13% of the vote going to the far-right Alternative for Germany party will likely have far reaching implications for immigration and EU integration. With a coalition government possibly taking months to form there is also a risk that this could weaken the EU position as it negotiates the Brexit with the U.K.
U.S. markets fell from the open, with technology shares leading the way lower as losses in that sector have continued to confound investors. Some analysts have begun to call this a sector rotation, with investors moving out of technology and taking profits and moving into the more cheaply priced energy and consumer staples sectors. Also weighing on equities was the escalating tensions between the U.S. and North Korea, which could keep pressure on equities all week if it continues.
FOREX
EUR/USD
The pair gapped lower at the open and continued to decline in the wake of the German Federal Elections held Sunday. Although Angela Merkel won a fourth consecutive term as German chancellor, it was by a thinner margin than expected, and the result is a coalition government that could take months to form, and will almost certainly put Germany, and to some extent the European Union, into some turmoil.
USD/JPY
While the pair gapped higher at the open in Asia, it was unable to hold onto those gains and by the end of the session was below the 112.00 level as safe haven buying strengthened the Yen. Whether the pair continues lower or is able to recover back above the 112.00 level is very dependent on the commentary from the U.S. and North Korea, as a lack of further aggressive posturing would likely allow risk aversion to recede.
Cryptocurrencies
The cryptocurrency market recovered further on Monday, with Bitcoin trading nearly back to $4,000 and Litecoin topping $50 for the first time since September 20. Ethereum was the weakest of the major cryptocurrencies as traders have been put off by the delay of the next major upgrade to the Ethereum blockchain.
Commodities
Metals
Growing tensions between North Korea and the U.S. sent gold shooting higher on Monday. The jump in demand for safe haven assets came Monday after reports that North Korean Foreign Minister had told reporters that Trump’s recent comments were a “declaration of war”, and that North Korea would be justified in shooting down U.S. bombers. This latest aggressive stance could serve to keep gold moving higher all week, especially if it is followed by any aggressive actions from North Korea.
Oil
Crude made significant gains on Monday, with Brent crude reaching a 2-year high, while U.S. West Texas Intermediate crude reached 4-month high. The rally in crude continues as traders see signs that the efforts of OPEC and Russia to deplete the global glut of crude are beginning to work. There have also been hints that OPEC will extend production cuts, which could see WTI crude trading back to $60/barrel in coming weeks.
Indices
Nasdaq
The technology heavy index got hammered lower on Monday. Investors sent the Nasdaq sharply lower as they sold off technology broadly, with everything from semiconductors to internet plays suffering. The move lower took the Nasdaq briefly as low as the 50 day moving average, but that line held as support, a temporary sign of remaining strength in the market.
FTSE 100
The British index fell modestly on Monday as investors watched the Pound climbing versus the Euro following the results of Sunday’s German elections. The stronger Pound makes U.K. businesses less competitive outside the U.K. Additionally, the U.K. began its fourth round of Brexit negotiations with the EU on Monday, and the results of those negotiations will almost certainly have an impact on the Pound and on British equities.
Stocks
Amazon (NASDAQ:AMZN)
While Amazon was 1.6% lower on Monday, its loss was far less than other names in the tech space. However, the stock moved below the solid support at $940, and given its recent inability to rally out of its consolidation pattern, it could be indicating another leg lower for Amazon shares, with the next level of support being at $850.