Asia Pacific Market Open – Brexit, British Pound, Swiss Franc, S&P 500, Fed, US Dollar
- British Pound little changed on Brexit latest as US Dollar weakness worked in its favor
- S&P 500 selloff amplified after Europe trade by pessimistic US home builder sentiment
- Asia Pacific benchmark stock indexes may follow Wall Street lower, boosting the Yen
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The volatile British Pound managed to brush off Brexit headlines by the end of Monday’s trading session. Earlier in the day, UK Prime Minister Theresa May continued to double down on her Brexit draft. She said that ensuring free-flowing borders with Europe is crucial. This still has her at odds with leavers at a time when her leadership is at risk. The markets reacted by selling Sterling aggressively.
GBP/USD was able to recover as a result of pronounced weakness in the US Dollar during the latter half of the trading session. There, Wall Street ended the day in the red as the S&P 500 plunged about 1.66% to its lowest close this month. At the same time, you had a rally in US government bond prices which reflected investors seeking safety in a ‘risk-off’ trading dynamic.
This risk aversion was preceded by developments out of Europe which sent the Euro Stoxx 50 about 0.64% lower. The catalyst may have been as a result of a plunge in Renault, a major French carmaker, as their stock tumbled about 8.5 percent. Renault’s Chairman, Carlos Ghosn, was arrested for ‘significant acts of misconduct’. As a knock-on effect, the Swiss Franc, a regional haven, appreciated broadly.
In this scenario, the US Dollar can benefit as a result of its highly liquid and world reserve currency status. But, that was not the case. Looking at Fed funds futures, 2019 and December 2018 rate hike bets continued fading. The depreciation in the Dollar picked up pace after the NAHB Housing Market Index, a gauge of home builder sentiment, dropped to 60 in November from 67 expected.
This was not only the lowest outcome since August 2016, but the drop itself was almost by 12 percent. The intensity of the deterioration was by the most in over four years. Not surprisingly, this has come against the backdrop of higher interest rates. This tends to slow demand for housing which is about a 15-18% contribution to GDP according to the National Association of Home Builders (NAHB).
By the end of the day, the anti-risk Japanese Yen finished the day higher against most of its major counterparts. Meanwhile, the pro-risk Australian and New Zealand Dollars fell flat on their faces. There may be more of the same ahead should Asia Pacific benchmark stock indexes track Wall Street lower. Given a lack of key local economic event risk next, risk trends may be the primary driver for financial markets.
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