The euro and European stocks dipped in early trades yesterday after coalition talks collapsed in Germany, but they recovered as investors turned their focus back to improving fundamentals.
Chancellor Angela Merkel said her efforts to form a three-way coalition government had failed, thrusting Germany into a political crisis and pushing Europe’s largest economy closer to a possible new election.
German stocks, which had opened the day half a per cent lower, had erased all the losses and were up 0.1 per cent while the main pan-European broader Euro STOXX 600 index was 0.3 per cent higher at one point.
This move was even more stark on the euro: the single currency had dipped to as low as $1.1722 at one stage, was back up on the day, resuming a more than two per cent recovery against the dollar over the past two weeks.
Against the yen, the single currency dipped as much as 0.8 per cent in Asian trading to a two-month low of 131.16 yen.
But it was flat in London trade at 131.97 yen.
“The eurozone political story is an outlier at the moment in the G10 currency trading space. The German political news over the weekend is not a game changer in our view,” said Viraj Patel, a currency strategist at ING in London.
“The broader story in all this scenario still remains of a recovering eurozone with improving fundamentals.”
In fact, Germany’s own economy is powering into the end of the year thanks to strong industrial activity and firms are increasingly struggling to find workers to satisfy orders, its central bank said yesterday.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was off its session lows to be slightly down, as volatile Chinese shares reversed earlier sharp losses.
Japan’s Nikkei stock average finished down 0.6 per cent.
“It’s year-end season, so people have more incentive to take profits,” said Kyoya Okazawa, Hong Kong-based head of institutional clients, APAC at BNP Paribas Securities.
Wall Street futures suggested that US stocks were set to edge lower as well after ending last week on a sour note as investors weighed the fate of the Republicans’ tax overhaul plan.
The dollar, on the other hand, was higher against a basket of major currencies on Monday, and moved further away from one-month lows hit last week.
Crude oil futures were broadly lower, with Brent crude dropping 1.2 per cent, with traders wary of betting too heavily on which way prices might move ahead of an Opec meeting next week, when the exporter group is expected to decide whether to continue output cuts aimed at propping up prices.