Market Summary
Asia
It was a bit of a rollercoaster for Asian markets last week as technology sold off early in the week, leading to losses by Wednesday for most major indices across the region. By Friday however, the Nikkei had recovered all its losses for the week. Hong Kong’s Hang Seng still remained 1.8% lower on a weekly basis, and mainland China’s Shanghai Composite was lower by 0.9% as a Friday rally wasn’t enough to erase losses from earlier in the week. South Korea’s Kospi lost 0.4% for the week, and in Australia the S&P/ASX 200 edged up by 0.1% on a weekly basis.
The coming week should be better for markets in Asia as we’re seeing the U.S. dollar strengthen, which is good for exporting companies. Markets have stabilized, and with little economic data from Asia early in the week markets should take their lead from Wall Street, which has shown strength as indices there continue hitting new record highs. Australia could remain a weak area as metals prices have been retreating, negatively impacting the mining sector. Mainland China could also see choppy trade as investors remain worried about a potential slowdown in the economy, although we should see the Hang Seng in Hong Kong bouncing back from last weeks’ losses.
Europe
European markets got off to a strong start following the weekend passage of U.S. tax reform legislation by the Senate, and while there was a bit of a lull mid-week, markets in Europe weren’t heavily impacted by the tech selloff. They finished the week strongly as well on the back of a weaker Euro and news that the Brexit divorce negotiations reached a point that would allow for advancing to the next stage. Additionally, banks rallied after a long-awaited post-financial crisis deal on Basel III standards was agreed on late Thursday.
By Friday the pan-European Stoxx Europe 600, the broadest measure of the European equity markets, was 1.4% higher for the week, with Germany’s DAX advancing 2.3% on a weekly basis, and the French CAC 40 gaining 1.5% on the week. London’s FTSE also finished 1.8% higher as it rose strongly at the end on the week on the Brexit breakthrough.
The breakthrough in the Brexit negotiations has lifted investor sentiment, as investors are envisioning the U.K. maintaining tight trade ties with the European Union after the break between the two. This should keep markets moving higher on Monday, and if we continue seeing weakness from the Euro we could also see Germany’s DAX and France’s CAC 40 regaining their record levels before 2017 closes. The FTSE could also retake its record high of 7,598 this week in response to the Brexit progress, although this Thursday’s monetary policy statement from the Bank of England could derail any rally in equities if it turns out more hawkish than expected.
US
U.S. markets got off to a rocky start last week, with rallies fizzling out both Monday and Tuesday. Wednesday remained weak as well, but by Thursday and Friday risk appetite had returned and markets stabilized and turned higher.
By the close Friday the Nasdaq remained just 0.1% lower for the week, while the Dow Industrials and S&P 500 both up 0.4% and at new record highs.
U.S. markets are likely to continue higher as this week begins, although some caution could be evident by Tuesday as the Federal Reserve is scheduled to release its latest monetary policy statement, including a 25 basis point hike in interest rates to 1.50%. Because the interest rate hike is already baked into markets, little reaction should be seen from the U.S. dollar, unless the Fed surprises by keeping rates unchanged, in which case the USD could plummet sharply. Also on the docket is PPI data on Tuesday, CPI data on Wednesday, and retail sales data on Thursday. Both the CPI and retail sales data have strong expectations, so a disappointment is a possibility, and that could hurt the equity markets.
Cryptocurrencies
The most excitement last week was generated by the cryptocurrency Bitcoin, which saw its price soar from the $11,500 level at the beginning of the week, to over $17,000 briefly by the end of the week. There was a weekend pullback that took prices back near the $13,000 level late Saturday night, but by Sunday price had recovered to roughly $15,500.
The upcoming week is likely to be just as exciting for Bitcoin as it enters the mainstream for the first time. The Chicago Board of Options Exchange has launched a futures product based on Bitcoin at 17:00 CST Sunday. This launch has been highly anticipated by the cryptocurrency and financial communities alike, with some predicting it will be the catalyst for a renewed rally in Bitcoin to new record levels. In addition to the CBOE futures product offering, the Chicago Mercantile Exchange will also release a Bitcoin futures product on December 18, adding additional institutional interest to Bitcoin.
The launch of Bitcoin futures products could also have an impact on the gold market. Some analysts had said that Bitcoin is already putting pressure on gold prices, which were 2.6% lower in the previous week, with gold settling at a nearly 5-month low. Because investors are seen as using Bitcoin as a store of value in lieu of gold, some are predicting an extended bear market for gold as we head into 2018. This could see gold testing the $1,200 level last seen in March, and possibly even the $1,125 level seen in December 2016.