HONG KONG: The euro faced fresh pressure in Asian trade on Monday after German Chancellor Angela Merkel failed to form a government at the weekend, fuelling uncertainty in Europe’s biggest economy.
Several Asian stock markets tracked a sell-off on Wall Street, where all three main indexes finished in the red on profit-taking and fears that US lawmakers would struggle to pass Donald Trump’s tax-cut plans.
While the House of Representatives approved its version of the reform legislation and a key Senate panel cleared a different version, the Republicans’ wafer-thin majority in the Senate mean they will have a tough fight to clear the upper chamber.
Treasury Secretary Steven Mnuchin predicted a final draft would reach Trump’s desk by Christmas, but observers said that time-frame would be tough given the tight margins and some senators’ concerns over some of the measures.
Hopes for market-friendly tax cuts as well as for major infrastructure spending and deregulation helped fuel a surge in global equities this year.
The losses in New York continued in Asia on Monday but some markets managed to bounce back in the afternoon.
Tokyo ended down 0.6 percent, while Sydney shed 0.2 percent and Seoul lost 0.3 percent.
However, Hong Kong rose 0.2 percent, marking a fourth straight gain, while Singapore was up 0.1 percent.
Shanghai added 0.3 percent as traders brushed off early worries about a crackdown on the wealth management industry, which will regulate almost $15 trillion in assets, as part of a drive to address a huge debt mountain.
Jakarta hit another record high, rising 0.6 percent.
‘Basis of trust’
On currency markets the euro fell after Merkel’s attempts to form a new government collapsed—plunging Germany into a crisis that could see it hold fresh elections.
The leader of the pro-business FDP, Christian Lindner, walked out of talks, saying there was no “basis of trust” to forge a government with Merkel’s conservative alliance the CDU-CSU and the ecologist Greens.
There are fears the country could be gripped by months of paralysis with a lame-duck government, while Merkel’s political future has also been called into question.
“The news is negative for the euro but its longer-term implications are not clear yet,” Mansoor Mohi-uddin, head of currency strategy in Singapore at NatWest Markets, told Bloomberg News.
However, while the euro has taken a hit, Stephen Innes, head of Asia-Pacific trading at OANDA, said he doubted the sell-off would be sustained.
“Liquidity is exceptionally thin and could exaggerate moves. But this knee-jerk reaction does look a bit overdone as Merkel can still establish a minority government with either the FDP or Green Party,” he said.
Oil prices were mixed but both main contracts managed to hold on to Friday’s surge. That came after Saudi Arabia’s energy minister Khaled al-Faleh said he remained committed to an OPEC deal to limit production.
In early European trade Frankfurt fell 0.5 percent, London shed 0.3 percent and Paris dropped 0.2 percent.