Tech Lags In Asia, EU Down On Earnings, Mid-Term Elections In Focus

Asian Markets Up Despite Weakness In The Tech Sector

Most Asia-Pacific based equity indices closed in the green on Tuesday despite weakness in the tech sector. The Japanese Nikkei led with a gain near 1.20% and was followed by a near 1.0% gain in Australia, a 0.72% advance in Hong Kong, and a 0.61% increase for the Korean Kospi. Markets were buoyed by the outlook for US mid-term elections; an event expected to flip the US House of Representatives and put a check on President Donald Trump protectionist rhetoric.

Shares of conglomerate Softbank fell more than -2.0% on weaker than expected outlook. The company issued earnings that were above expectations, but comments about the Vision Fund sent investors to the exits. The Vision Fund, responsible for billions in global tech investment, is closely-linked to Saudi Arabia and may experience turbulence related to the Jamal Khashoggi killing.

In Australia, the Reserve Bank of Australia decided to keep rates unchanged and helped lift the ASX. The bank says the current fiscal policy is aiding recovery in the Land Down Under and should be expected to continue into the foreseeable future.

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” said Philip Lowe, governor of the RBC.

European Markets Down On Retail, A No-Deal Brexit Is Still On The Table

In the UK the pound took a hit from comments issued by a member of parliament. According to reports, the lawmaker said it looks like Britain is heading for a no-deal Brexit despite a breakthrough in negotiation that was reached last week. Prime Minister Theresa May is heading a meeting with the cabinet to urge hardliners to make concessions and allow a deal to move forward.

On the earnings front, weaker than expected reports from some top retailers had the equities markets moving lower at midday. Shares of WM Morrison led the decline on reports earnings growth slowed more than expected over the last year while shares of Zalando were not far behind. Zalando, an online shoe retailer, reported the slowest pace of sales since it was IPO’d.

On the economic front, EU composite PMI fell more than expected and hit a two-year low. The news is only the latest in a string of reports confirming EU growth is slowing and more than expected. The EUR/USD moved up on the news, but the gain was not strong. The pair is indicated to move up off the long-term low, but resistance targets are present at and near the short-term 30-day EMA.

US Elections And The FOMC Will Move Markets

In the US markets are focused on two things; the mid-term elections and the FOMC meeting. The mid-term elections are expected to result in a Democratic takeover of the House and leave the GOP in control of the Senate. This change would put a check on Donald Trump’s right-wing agenda but may pave the way for deals on issues key to the Democratic left-wing. The market reaction, in either case, is expected to be strong.

Regarding the FOMC. The US central bank is not expected to alter policy at this meeting but may alter its statement or outlook. The bank has taken a firm stance in recent months that rates would continue to rise over the next year despite signs inflation acceleration is contained. If they maintain the hawkish tone, the USD and Dollar Index could see substantial gains. The US equity indices were indicated to open flat or with small losses in the early pre-market session.