Asia shares stumble; political uncertainty grips euro

Asia shares stumble; political uncertainty grips euro

By Rae Wee

SINGAPORE (Reuters) – Asian stocks fell on Monday as traders sharply reduced their bets on a Federal Reserve rate cut this year, given a still-tight U.S. labor market, while the triggering of Early elections in France have sparked wider political concerns and weighed on the euro.

Trading slowed in Asia with Australia, China, Hong Kong and Taiwan off for the public holiday, but MSCI’s broadest index of Asia-Pacific shares outside Japan still fell by 0.46%.

US futures eased slightly, with S&P 500 and Nasdaq futures down about 0.03% each, while the dollar was back in the spotlight.

The halt to the global rise in risk came following Friday’s nonfarm payrolls report, which showed that the U.S. economy added far more jobs than expected in May and that annual growth in Wages had reaccelerated, underscoring the resilience of the labor market.

Futures are now showing cuts of around 36 basis points (bps) for the Fed, compared to 50 bps last week. The odds of an easing cycle starting in September have also increased.

The latest developments come ahead of the Fed’s policy decision on Wednesday, with US inflation figures for May due just before.

“It’s going to be very difficult for the Fed to continue to predict three rate cuts this year,” said Rob Carnell, ING’s regional head of research for Asia-Pacific.

“Many Fed speakers are talking about the possibility of just one (cut). While the most likely outcome is that we’ll see all three go to two, it’s possible that we’ll just go to one.”

U.S. Treasury yields also rose on Monday, reflecting expectations of higher and longer U.S. rates. (WE/)

The two-year yield and the benchmark 10-year yield each rose about 1 bps to 4.8826% and 4.4414%, respectively.

Against the dollar, the yen fell 0.1% to 156.87. The dollar index, which measures the greenback against a basket of six peers, firmed to 105.10.

The Japanese Nikkei benefited from the weakness of the yen and increased by 0.42%.

The Bank of Japan (BOJ) is also holding its two-day monetary policy meeting this week and may provide further guidance on how it plans to scale back its massive bond purchases.

SNAPSHOT ELECTION

In France, President Emmanuel Macron on Sunday called early legislative elections for the end of the month after being defeated in the vote on the European Union by Marine Le Pen’s far-right party.

Macron’s shock decision triggered a political earthquake in France, offering the far right a chance to win real political power after years of absence and threatening to neutralize his presidency three years before it ends.

The euro fell to its lowest level in a month following the announcement, amid growing uncertainty over Europe’s future political direction. It was down 0.25% at $1.07735.

Futures also fell, with EUROSTOXX 50 futures losing 0.38% while FTSE futures slipped 0.7%. French bond futures lost 0.2%.

“Macron’s move, seen as a calculated risk, comes as he struggles with a parliamentary majority, making legislative progress difficult,” said Shier Lee Lim, head of foreign exchange and macro strategy for the region. APAC by Convera.

“We remain bearish on (the euro) in the short term.”

In the commodities sector, oil prices rose for the last time, reversing slight declines earlier in the session due to a stronger dollar.

Brent crude futures gained 0.13% to $79.72 a barrel, while U.S. West Texas Intermediate crude futures rose 0.16% to $75.65 a barrel. (OR)

Spot gold rose 0.18% to $2,296.65 an ounce. (GOL/)

(Edited by Sonali Paul)

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