By Ankur Banerjee
SINGAPORE (Reuters) – Asian stocks were lower on Monday as traders questioned the outlook for U.S. rates, while the euro rose after the first round of snap elections in France was won by the far right, although with a lower share than in some polls. had planned.
The shock vote roiled markets as the far right as well as the left-wing alliance, which came second on Sunday, promised major spending increases at a time when France’s high budget deficit has prompted the EU to recommend disciplinary measures.
On Monday, the euro was up 0.32%, while European stock futures rose 1% and French OAT futures gained 0.15% as investors digested better-than-expected results, although uncertainty remains.
Exit polls showed Marine Le Pen’s National Rally (RN) winning around 34% of the vote, comfortably ahead of its left and centre rivals, but the chances of the eurosceptic, anti-immigrant RN winning power next week will depend on the political deals struck by its rivals in the coming days.
“The outcome may not be as bad as the market feared,” said Michael Brown, senior strategist at Pepperstone.
“We have also heard a lot of talk from other parties that they may be looking to withdraw candidates to try to prevent the National Rally from winning seats in the second round next Sunday… The market may take some comfort in that.”
Attention now turns to the second round next Sunday, which will depend on how the parties decide to join forces in each of the country’s 577 constituencies for the second round, and could still result in a majority for the RN .
“Investors fear that if the far-right National Rally party wins a majority in the French Parliament, it could pave the way for conflict between France and the EU, which could seriously disrupt European markets and the euro said Vasu Menon, Managing Director of Investment Strategy at OCBC.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.07% to start the second half of the year after rising 7% so far in 2024. Japan’s Nikkei rose 0.57%.
Chinese stocks fell, with blue stocks falling 0.45%. Hong Kong’s Hang Seng Index remained stable.
A private sector survey on Monday showed that Chinese manufacturing activity expanded at the fastest pace in more than three years on output gains, even as demand growth slowed.
Caixin/S&P’s global manufacturing PMI data contrasts with an official PMI released on Sunday that showed a decline in manufacturing activity.
On the macro side, attention remains on whether and when the Federal Reserve will begin cutting rates following data released Friday showing U.S. monthly inflation was unchanged in May.
In the 12 months through May, the PCE price index rose 2.6% after rising 2.7% in April. Last month’s inflation reading was in line with economists’ expectations. It remains above the Fed’s 2% inflation target.
Still, markets are clinging to expectations of at least two rate cuts from the Fed this year, with a September cut estimated at a 63% probability, the CME FedWatch tool showed.
U.S. stocks ended lower on Friday after an early rally failed. (.N)
Among currencies, the yen was trading around 160.98 per dollar after the government, in a rare unscheduled revision to gross domestic product (GDP) data on Monday, said Japan’s economy shrank more than initially reported in the first quarter.
The data also showed that Japan’s industrial activity was unchanged in June due to weak demand and companies faced rising costs from the weak yen.
The yen fell to 161.27 on Friday, its lowest level since late 1986, keeping traders on guard for signs of intervention by Japanese authorities.
The euro hit a more than two-week high of $1.076175 in early Asian hours, pushing the dollar index, which measures the U.S. unit against six rivals, slightly lower to 105.59.
In commodities, oil prices edged higher, with Brent crude futures up 0.39% at $85.33 a barrel and U.S. West Texas Intermediate crude futures up 0.42% at $81.88. (OR)
(Edited by Stephen Coates)
