Daily Market Analysis – 23.10.2017

Market Summary

Asian markets continued to rally higher on Friday, with the Australian S&P/ASX 200 gaining for the eighth session in a row, and Japan’s Nikkei extending its winning streak to fourteen consecutive sessions. It is the longest winning streak for the Australian market in fifteen months, but in Japan the Nikkei’s winning streak is the longest in 57 years. Also of note was another closing record high for South Korea’s Kospi Index, as well as a strong rebound of 1.2% in Hong Kong’s Hang Seng, which fell 2% in the previous session after a warning from the governor of China’s central bank rattled investors.

European markets ended broadly higher as investors continued to shrug off the standoff between Spain and Catalonia. Even though Spain has said they will invoke Article 155 of the Spanish Constitution and remove Catalonia’s autonomy this weekend if independence leaders don’t agree to abandon their bid for independence, investors seem to have little concern, as long as the issue remains confined to Spain. Also helping European markets was a firmer Euro. London’s FTSE ended the day flat, giving back early gains as the Pound rallied late in the session following news that the Brexit stalemate had been broken and that progress was being made in negotiations.

U.S. markets rallied to new record heights following the passage of a budget blueprint by the U.S. congress. The budget is seen as a necessary step before Congress can pass any tax reforms, so the passage of the budget renewed investor hopes for tax reform by the end of the year in the U.S. The financial sector rose the most on the news, but the industrial and materials sectors also benefitted. Also, showing strength was the technology sector, which helped lift the Nasdaq.

Today’s Assets

Bitcoin 

The first and largest cryptocurrency by market capitalization remains solidly in our view as it was able to top the $6,000 level late Friday, as well as topping $100 billion in market capitalization. The weekend saw Bitcoin pulling back, testing the $6,000 level for support, and by Sunday that support had given in, allowing Bitcoin to trade back below the $6,000 level, although it remained very close to that handle. Interestingly, during the run-up in price, none of the other cryptocurrencies participated. And the pullback in Bitcoin caused the all the other cryptocurrencies to fall as well. Some are attributing this to the upcoming hard forks in Bitcoin, in which holders will receive equal amounts of the new coins being created. This can be considered like a dividend for holders when the forks occur, which will be on October 25 for the Bitcoin Gold fork, and later at a yet-to-be determined date in November for the SegWit2x fork.

USD/JPY

The pair rallied strongly Friday, finally breaking through the resistance at the 113.00 level that had held the pair back for roughly six weeks. After that move the pair felt free to extend the gains and gapped significantly higher at the open early Monday in Japan, as it appeared that Prime Minister Shinzo Abe had won his gamble, with his party increasing and consolidating their power over Japanese politics. This is good news for a weaker Yen as the monetary and fiscal policies of Abe have favored a weaker Yen over the past five years, and traders are expecting more of the same. The pair did pull back after the initial gap higher, as it bumped up against more psychological resistance at the 114.00 level, but there’s a good chance that European and North American traders will push the pair higher still later today.

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