Asian markets got off to a strong start for the week, rising Monday and extending gains from the end of the previous week. Markets paused on Tuesday, but then resumed the uptrend Wednesday as investors looked ahead to the U.S. monetary policy statement. The remainder of the week saw markets falling for the most part, after the Federal Reserve gave little guidance for the upcoming year. By the end of the week markets were mixed, with the Hang Seng in Hong Kong and South Korean Kospi outperforming as they both gained 0.7%. Mainland Chinese investors were less optimistic, with the Shanghai Composite dropping 0.7%. The Australian S&P/ASX 200 was basically flat, up just 2 points as it gave back gains from earlier in the week. And the Nikkei in Japan suffered the worst loss in the region, falling 1.1% in response to a stronger Yen and weaker U.S. dollar.
The upcoming week will see Japan’s central bank releasing its latest monetary policy statement, with little change expected, although there have been rumblings about raising long-term interest rates and putting less emphasis on the 2% inflation target. However, Bank of Japan governor Haruhiko Kuroda just last week stated that the central bank will guide monetary policy appropriately reflecting improvements in the economy. The technology sector rebounded Friday, but may not be fully out of the woods, and this could weigh on results in South Korea and Taiwan, while weakness from banks and financial companies could pull markets in Hong Kong, Singapore and Japan lower. Crude oil and the metals complex remain somewhat bullish, which may help Australia’s S&P/ASX 200 in the upcoming week, as long as banking shares don’t offset gains.
With the exception of a burst higher on Tuesday, European markets saw mostly weakness throughout the week. The results of the Federal Reserve monetary policy meeting weighed on markets mid-week as it allowed the Euro to rally on Wednesday, and even though the Euro gave back those gains Thursday and Friday, markets continued lower on concerns over the European Central Bank lowering inflation forecasts, and on doubts over the ability of the U.S. to pass its tax reform legislation. By the end of the week the Stoxx Europe 600 was 0.2% lower, with Germany’s DAX falling 0.4%, and the CAC 40 underperforming as it dropped 0.9%. Things were rosier in the U.K., despite increased concerns over the next phase of Brexit negotiations. The Pound remained depressed at the end of the week, and the FTSE was able to gain 1.3% for the week.
European markets may get a reprieve from the lowered ECB inflation forecast when CPI data is released Monday. If the CPI data is higher than expected, or even in-line with expectations we could get a move higher from equities as investors discount the ECB forecast on inflation. Otherwise there is little European data due out to move markets, and with the Christmas holiday right around the corner we could see trading volumes drop significantly by the end of the week. Things could remain more upbeat for British equities, especially if the Pound remains weak. However, there remain worries over the next phase of Brexit negotiations to derail markets. There is also a solid area of resistance roughly 1% higher for the FTSE, at the 7,550 level. Given the upcoming Christmas holiday it isn’t likely that investors will push the FTSE above this resistance.
U.S. markets were on solid footing ahead of the Wednesday Federal Reserve monetary policy statement, but the lack of guidance on future rate hikes from the Fed caused a pullback on Thursday. Markets recovered strongly however, rallying on Friday to put major indices solidly into positive territory for the week. On a weekly basis the S&P 500 gained 0.9%, the Dow Industrials were 1.3% higher, and the Nasdaq outperformed with a 1.4% gain.
The performance for equities in the upcoming week will most likely hinge on U.S. tax reform. The Republicans were able to submit a final bill by the end of last week, and it will now head to the House and Senate for voting. The results of these votes will have a strong impact on equity markets. We expect the bill to pass the House vote on Tuesday, but the Senate vote occurring later in the week could be more problematic. The original bill only passed the Senate with a 51-49 vote, although one key Republican holdout in the first vote has expressed his support for this version.
The beginning of last week saw the introduction of Bitcoin futures trading on the CBOE and a Monday rise for Bitcoin of 15%. However the bulk of the week saw Bitcoin drifting lower, while altcoins experienced explosive moves higher. Ripple was exceptional as it gained more than 200% by Thursday before pulling back slightly heading into the weekend. Litecoin settled the week right around the $300 level, and Ethereum was trading back and forth over the $700 level.
With CME Bitcoin futures starting to trade late Sunday we could see a similar pattern in the upcoming week, with Bitcoin surging initially in response to the start of futures trading, and then altcoins rallying later in the week as investors cash in Bitcoin profits and move capital into the smaller, and more volatile coins. It’s uncertain how the upcoming Christmas holiday will affect trading in the cryptocurrency markets as most traders are retail traders who won’t necessarily be taking off for the holiday.
|10:00||EUR||Final CPI y/y|
|00:30||AUD||Monetary Policy Meeting Minutes|
|13:15||GBP||BOE Gov Carney Speaks|
|15:30||USD||Crude Oil Inventories|
|Tentative||JPY||Monetary Policy Statement|
|13:30||CAD||Core Retail Sales m/m|
|13:30||USD||Final GDP q/q|
|09:30||GBP||Final GDP q/q|