The euro and European stocks dipped in early trades on Monday 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.
This move was even more stark on the euro: the single currency had dipped to as low as $1.1722 EUR= at one stage, was back up on the day by 0900 GMT, resuming a more than 2 percent recovery against the dollar over the past two weeks.
“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 still remains of a recovering euro zone 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 on Monday.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off its session lows to be slightly down, as volatile Chinese shares reversed earlier sharp losses.
Japan’s Nikkei stock average .N225 finished down 0.6 percent.
“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.
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. .DXY
Crude oil futures were broadly lower, with Brent crude LCOc1 dropping 1.2 percent, 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.
