Global Commentary
Asian markets extended the overnight gains seen on Wall Street, with most of the major indices that were open posting gains. Hong Kong’s Hang Seng reached a ten-year high intraday as it continues to be one of the strongest performing markets not only in Asia, but globally. Australia saw shares decline on broad based weakness that included a more than 1% decline for all the big four banks, and declines in the mining sector, despite firming commodity prices.
European markets were broadly higher on a country specific basis Wednesday, but a broad pan-European based index snapped a nine session winning streak as the Spanish market fell sharply on concerns over increased turmoil from the Catalonian secession movement. While the Spanish government has called the secession illegal and vows not to recognize it, Catalonian officials vow they will announce the secession in a few days, which would spark the worst political crisis in Spain in decades. Surprisingly, the rest of Europe has shrugged off the issue, with Germany’s DAX hitting a new record high Wednesday. Meanwhile, London’s FTSE snapped a five session winning streak as it settled just slightly lower in reaction to the Pound recovering following the release of better than expected services PMI for September in the U.K.
U.S. markets struggled to remain in positive territory early after rumors emerged that Secretary of State Rex Tillerson was resigning, and that he had referred to President Trump as a “moron”. The Secretary held a news conference late Wednesday morning to refute the claims, and that helped stabilize markets enough that they closed in positive territory, setting new record closing highs once again. It was notable that the defensive utilities and real estate sectors were the best performers, while the financial and technology sectors underperformed.
FOREX
EUR/USD
The pair remained tightly range bound on Wednesday, as the moderate weakness of the USD was offset by the turmoil in Spain, leaving this pair little changed at the close. The 1.1800 level is acting as resistance, and not only will that likely continue to be the case, but we could see the pair begin heading lower if we get an actual statement of secession from Catalonia.
GBP/USD
The pair tried to rise on Wednesday, but was unable to do so in the face of the resistance at the 1.3300 level and instead dropped back to end the day basically unchanged. There is a good chance traders are willing to spend some time on the sidelines as Thursday will bring twp Federal Reserve member speeches, as well as two MPC voting member speeches, and any of the four speeches could have an impact on this pair.
Cryptocurrencies
Cryptocurrencies remained lightly under pressure on Wednesday, with Bitcoin and Litecoin both retreating 1.8% near the end of the day, while Ethereum gained 0.6%. Smaller coins made larger movements, and the Ripple coin remains one of the strongest cryptocurrencies currently, although that could change rapidly if Bitcoin regains its strength.
Commodities
Metals
Precious metals were mixed on Wednesday, with gold rebounding from recent lows, while silver settled lower on the day. Gold had been much higher, but fell back when the U.S. reported the highest services PMI in 12 years. Still, the yellow metal held onto some of its gains by the close, posting an increase for the first time this week.
Oil
Crude fell on Wednesday, with the U.S. West Texas Intermediate crude contract dropping below the $50 a barrel level for the first time in two weeks. Prices were briefly higher late Wednesday morning after the U.S. Energy Information Administration announced crude inventory levels had fallen by 6 million barrels in the previous week, which was four times the expected drop. But prices dropped back into the red as traders were more concerned with the reported rise in OPEC output for September.
Indices
Nasdaq
The Nasdaq closed just slightly higher on Wednesday, underperforming major indices as the technology sector struggled. The sector has been trending lower for much of September, and while it has had some good sessions, it appears that trend hasn’t yet finished playing out. Shares of Apple (NASDAQ:AAPL), which is the largest component of the Nasdaq, finished 0.7% lower as investors continue to have doubts about the most recent product launch for the iPhone 8 and iPhone X.
IBEX 35
The Spanish benchmark index fell 2.9% on Wednesday, suffering its worst one day decline since June 2016 following the Brexit vote. The index also dropped below the 10,000 level for the first time since March as investors are fretting over the potential for Catalonian officials to go through with the resolve to split from Spain. Spanish banks were hardest hit by the turmoil, and promise to be targeted by short sellers if Catalonia does announce a formal secession.
Stocks
Banco Santander (MC:SAN)
Investors could be looking at a good buying opportunity in this Spanish bank, which had been performing quite well this year, and especially in September, prior to the recent Catalonian secession referendum vote. The stock is down roughly 4.5% so far this week, and could continue falling for the rest of the week, but should rebound as the situation stabilizes. It is still one of the best performing Spanish bank stocks, and with the dividend yield now to 4.2% should see additional support. On the other hand, if Catalonian officials announce the secession from Spain expect a sharp drop in this and all Spanish banks, in which the selling could last for weeks.