Home > Blog > Markets commentary > Yen, Euro Drop as Politics in Focus; Stocks Fall

Politics dominated trading on Monday, with the euro sliding as Germany’s election result foreshadowed potentially complex political-coalition building, while the yen declined ahead of a fresh stimulus package being unveiled by Japan’s prime minister.

The euro was weaker against the dollar after Chancellor Angela Merkel won Germany’s election with a smaller share of the vote, with focus on a surprisingly strong result for a far-right party. Japanese equities bucked a trend of declines in Asian stocks thanks to optimism over a 2 trillion yen ($18 billion) stimulus from Abe ahead of an expected early election. A rout in Chinese property developers dragged on Hong Kong shares, while European equity futures tipped a weaker open.

“The question is obviously now what it means for policy going forward” in Germany, Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank Plc, said on Bloomberg Television in reference to the election. “Investors are going to be closely following announcements on policy, especially given that fact that the AfD is not just nationalist, but also anti euro to some extent,” he said of the far-right party that made surprising gains.

Central banks could offer further direction to markets this week, with both Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi among those scheduled to speak. Abe later will call a general election for Oct. 22, according to three people with knowledge of his ruling coalition’s plans.

Many investors have been advising to trim risk-taking in global portfolios after gains in stock prices pushed global equities to record levels last week. UBS Group AG, the world’s largest wealth manager, on Friday told clients worldwide to take some profit on their stocks as rising values make it more difficult to generate “significant” further gains.

The New Zealand dollar lost as much as 1.1 percent amid disappointment the ruling party failed to get a majority in a weekend vote, kicking off what could be weeks of coalition-building talks. South Korea’s currency rose as concerns over North Korean tensions faded, despite fresh rhetorical exchanges with the U.S. over the weekend.

What to watch out for this week:

  • Draghi addresses EU lawmakers in Brussels on Monday. Yellen speaks in Cleveland on Tuesday. Later in the week, Bank of England Governor Mark Carney speaks, as does Fed Vice Chairman Stanley Fischer.
  • European Union chief Brexit negotiator Michel Barnier and U.K. counterpart David Davis begin their next round of negotiations.
  • Household spending last month in the U.S. probably posted the smallest gain since February as motor-vehicle sales shifted into a lower gear, economists forecast government figures to show.

Here are the main moves in markets:

Stocks

  • Japan’s Topix index advanced 0.5 percent at the close in Tokyo. Australia’s S&P/ASX 200 Index ended virtually unchanged and South Korea’s Kospi index slid 0.4 percent.
  • The Hang Seng Index in Hong Kong fell 1.2 percent with Chinese property developers slumping after several cities on the mainland tightened rules on home sales.
  • Futures on the S&P 500 were little changed in early European trading. The underlying gauge closed up 0.1 percent on Friday.
  • Contracts on the Euro Stoxx 50 declined 0.3 percent.
  • New Zealand’s S&P/NZX 50 Gross Index rose 0.7 percent.
  • The MSCI Asia Pacific Index declined 0.4 percent.

Currencies

  • The yen slid 0.2 percent to 112.23 per dollar, kicking the week off on a down note after recording declines over the past two weeks.
  • The euro slid 0.3 percent to $1.1921.
  • The kiwi dropped 0.8 percent to 72.69 U.S. cents.
  • The won advanced 0.5 percent to 1,131.50 per dollar.
  • The British pound climbed 0.4 percent to $1.3560. It dropped 0.7 percent last week after disappointment at the lack of Brexit details from Prime Minister Theresa May.
  • The Bloomberg Dollar Spot Index was up 0.1 percent. It gained for the past two weeks.

Bonds

  • The yield on 10-year Treasuries was at 2.25 percent, up from its low near 2 percent earlier this month.
  • Australian 10-year bond yields were steady at 2.80 percent.
  • German 10-year bund yields were little changed at 0.45 percent.

Commodities

  • West Texas Intermediate crude lost 0.2 percent to $50.56 a barrel.
  • Gold lost 0.4 percent to $1,292.32 an ounce

Source: Bloomberg