Spreadex Market Update
Euro Slips Amid German Political Uncertainty and ECB Watch
The euro dipped to $1.0725 as German politics continued to fall apart over the weekend with major questions over Chancellor Scholz's leadership, with the possibility of a pre-Christmas confidence vote that could lead to early elections. Investors are cautious in Europe and Asia, awaiting US inflation data on Wednesday and signals from the ECB on its policy direction. All the major US indices hit record highs on Friday while the dollar remains elevated thanks to continued enthusiasm after the Presidential election.
Equities
The FTSE 100 dropped 0.8% on Friday to reach its lowest point since early August, marking its third consecutive weekly decline.
Homebuilder Vistry saw its share price tumble nearly 16% after issuing a second profit warning, citing inflationary cost pressures in its South Division. This drop weighed heavily on the FTSE 350 housebuilder index, which reached a near one-year low. Similarly, Persimmon flagged concerns about escalating costs on 2025 projects, reflecting broader challenges in the UK construction sector.
China-exposed UK firms, such as luxury brand Burberry and miners like Antofagasta, Rio Tinto, and Glencore, also fell sharply as investors reacted to China’s latest stimulus measures, which were seen as underwhelming.
Across the Atlantic, the S&P 500 hit a new record, briefly topping 6,000 points before ending up 0.4%, fuelled by investor optimism around Donald Trump’s presidential win and lighter regulation anticipated under his administration. This optimism extended the S&P 500 and Dow Jones indices to their best week in a year.
Electric carmaker Tesla saw an impressive 8.2% rise in its stock, pushing its market cap back to $1 trillion as CEO Elon Musk voiced strong support for Trump in the closing stages of his campaign. Meanwhile, the Nasdaq closed flat but near records, balancing gains in tech with broader market trends.
In Europe, the pan-European STOXX 600 slipped 0.7%, with German and French indices also down. In China, markets responded cautiously to a 10 trillion yuan debt package intended to ease local government financing issues, which disappointed those hoping for more direct economic stimulus. As a result, China-sensitive sectors, particularly luxury goods and mining, faced significant sell-offs.
Forex & Commodities
The US dollar edged higher on Monday as markets awaited key US inflation data and remarks from Federal Reserve officials.
After the Federal Reserve and the Bank of England both cut rates by a quarter-point and a half-point, respectively, US Treasury yields fell sharply, reflecting the anticipated patient approach from Fed Chair Jerome Powell.
The dollar gained against the yen, reaching 153.43, though Japanese intervention concerns limited its rise. A recent Bank of Japan policy meeting showed uncertainty around future rate hikes, with market volatility making an increase less likely in December.
Political turbulence continued to impact the euro, as German Chancellor Olaf Scholz proposed a confidence vote before Christmas, raising the possibility of snap elections. This added to recent pressure on the euro, which hovered near $1.0715. The dollar index was slightly higher at 105.05, extending last week’s gains against the euro and other currencies.
In commodities, gold prices fell 0.8% to $2,684.03 per ounce, logging a 1.8% weekly decline as a stronger dollar and Fed rate concerns dampened demand. Silver, platinum, and palladium also posted losses, with each metal slipping between 2.4% and 3.5% on the week.
Oil prices saw a similar decline on Friday due to receding supply risks from Hurricane Rafael and a muted response to China’s stimulus, with WTI closing at $70.38 per barrel and Brent at $73.87. Despite Friday’s drop, oil held a 1% weekly gain, supported by anticipated sanctions on Iran and Venezuela.
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