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What’s happening: European stocks were shorted on Monday, representing the biggest single-day decline since August.
What happened: Investors gave up European stocks on mounting concerns related to Donald Trump’s victory in the US Presidential election.
There are widespread concerns around President-elect Donald Trump’s policies stoking inflation and increasing tariffs.
Why it matters: As President-elect Donald Trump focused on selecting the new cabinet, investors sold European stocks on Monday on concerns over his policies impacting growth in the region.
While Trump’s win has lent support to the USD and US stocks, the event has stroked worries around a potential hike in trade tariffs. This would impact countries reliant on exporting to the US.
Mining stocks led the losses, falling around 4%, led by miners of iron ore sank and aluminium. Luxury stocks also declined, with bellwether LVMH down 4.5%.
Shares of Bayer AG shed 16%, falling to a 20-year low, after the pharma company cut its profit guidance. Vodafone Group’s stock was also shorted after the company reported lower-than-expected revenues in Germany. Tech stocks bucked the trend to inch higher by merely 0.04%.
The pressure on European stocks followed the decline in Asian markets. The Asia Dow shed 1.34%, Japan’s Nikkei 225 ended the day lower by 1.07%, Hong Kong’s Hang Seng lost 0.94% and China’s Shanghai was down 0.27%, while India’s Sensex ended Tuesday’s trading down 1.03%.
The Stoxx 600 shed 1.98% to close at 502.23 on Tuesday. Germany’s DAX lost 2.13% to reach 19,033.64, while France’s CAC 40 fell 2.69% to settle at 7,226.98. The UK’s FTSE 100 ended trading at 8,025.77, down 1.22%.
What to watch: Investors will continue monitoring President-elect Donald Trump’s selection of the new cabinet members, as this will give some insights into their possible policy changes.
Markets will also watch results by individual companies, which could impact the broader stock indices. China will also be in focus, with expectations of another stimulus to boost the economy.
Context: The JPY/USD forex pair fell to multi-month lows this morning amid concerns over the BoJ’s ability to tighten its monetary policy.
Details: The Japanese yen hit its lowest against the US dollar since July 30 on political uncertainties limiting the Bank of Japan’s ability to hike interest rates as is widely hoped.
Moreover, concerns around US President-elect Donald Trump raising tariffs, which could have a meaningfully negative impact on Japanese exports, also exerted pressure on the JPY.
Trump’s policies are expected to boost inflation, which would curb the Federal Reserve’s ability to cut interest rates. Higher interest rates translate to higher US bond yields, which exerts pressure on the lower-yielding Japanese yen.
Japan’s producer prices rose by 3.4% year-over-year in October, compared to a 3.1% increase in the previous month. The figure coming higher than market expectations of 3.0% exerted pressure on the JPY/USD forex pair.
Despite all these pressures, the USD/JPY remained above the 155.00 support level. Weakness in the US dollar lent some support to the forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained by 0.1% to 105.92 this morning.
The USD/JPY forex pair rose 0.16% to 154.85 this morning.
What to watch: Investors will monitor data on Japan’s GDP growth, scheduled to be released on Thursday. The Japanese economy expanded by 2.9% on an annualised basis in the second quarter of 2024, coming in lower than market estimates of 3.2%. Although disappointing, the figure represented a turnaround from the previous quarter’s contraction. Analysts expect Japan to report GDP growth of 0.7% for the third quarter.
Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.86%, 0.29% and 0.17%, respectively.
EU foreign policy chief Josep Borrell said the bloc has contributed over 980,000 shells to Ukraine for its ongoing war with Russia and is looking to surpass 1 million by yearend. The news sent the RUB/USD slightly lower in forex trading this morning.
The Philippines said its net foreign direct investment declined 14.5% year-over-year to $0.81 billion in August. Despite this, FD net inflows rising 3.9% year-over-year to $6.1 billion from January to August lent support to the PHP/USD forex pair.
Australia’s wage price index rose by 3.5% year-over-year in the third quarter, compared to a 4.1% increase in the previous quarter, which sent the AUD/USD pair slightly lower in forex trading this morning.
Eurozone’s ZEW Indicator of Economic Sentiment declined by 7.6 points to 12.5 in November. The figure coming in much lower than market estimates of 20.5 exerted pressure on the EUR/USD forex pair.
South Korea’s unemployment rate rose to 2.7% in October, from 2.5% in the previous month. The region’s jobless rate rising for the second straight month sent the KRW/USD pair lower in forex trading this morning.
France’s unemployment rate, India’s money supply M3 and total passenger vehicle sales, US MBA mortgage applications, consumer price index, consumer price index, government budget and API crude oil stocks, as well as Russia’s GDP growth rate and consumer price index.
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