Finance
Asian shares falter, euro rises after first round vote in France
By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares were subdued on Monday as traders pondered the U.S. interest rate outlook, while the euro rose after the first round of France’s shock election was won by the far right, albeit by a smaller share than some polls had projected.
The shock vote has roiled markets as the far right and the left-wing alliance that finished second on Sunday have pledged big spending increases at a time when France’s high budget deficit has prompted the EU to recommend disciplinary action.
On Monday, the euro was 0.32% higher, while European stock futures rose 1% and French OAT bond futures rose 0.15% as investors digested better-than-feared results, although uncertainty remained.
Exit polls showed Marine Le Pen’s National Rally (RN) won around 34% of the vote, well ahead of left-wing and centrist rivals, but the Eurosceptic, anti-immigrant RN’s chances of coming to power next week will depend of the political deal her rivals are making over the elections. the next few days.
“The outcome may not be as bad as the market had feared,” said Michael Brown, senior strategist at Pepperstone.
“We have also seen a lot of rhetoric from other parties who may want to withdraw candidates to try to prevent the National Rally from gaining seats in next Sunday’s second round… The market may take some comfort from that.”
The focus now shifts to next Sunday’s second round and will depend on how parties decide to join forces in each of the country’s 577 constituencies for the second round, and this could still result in a majority for RN.
“Investors are concerned that if the far-right National Rally party wins a majority in the French parliament, it could pave the way for a clash between France and the EU, which could seriously disrupt European markets and the euro,” says Vasu Menon, director of the French parliament. director of investment strategy at OCBC.
In Asia, the broadest index of Asia-Pacific shares outside Japan was 0.07% higher to kick off the second half of the year after rising 7% so far in 2024. Japan’s Nikkei rose 0.57%.
Chinese stocks fell, while blue stocks fell 0.45%. Hong Kong’s Hang Seng index was flat.
A private sector survey on Monday showed China’s manufacturing activity grew at the fastest pace in more than three years due to manufacturing gains, even as demand growth slowed.
The Caixin/S&P Global PMI data for the manufacturing sector contrasted with an official PMI released on Sunday that showed a decline in manufacturing activity.
On the macro side, the spotlight remains on whether and when the Federal Reserve will start cutting rates, in the wake of data on Friday showing US monthly inflation unchanged in May.
In the 12 months to May, the PCE price index rose 2.6%, after rising 2.7% in April. Last month’s inflation figures were in line with economists’ expectations. They remain above the Fed’s inflation target of 2%.
Still, markets remain clinging to expectations of at least two Fed rate cuts this year, with a September cut pegged at a 63% probability, CME’s FedWatch tool showed.
U.S. stocks closed lower on Friday after an early rally failed. [.N]
On the currency front, the yen traded around 160.98 per dollar after the government said on Monday, in a rare unscheduled revision of gross domestic product (GDP) data, that Japan’s economy shrank more than initially in the first quarter was reported.
Data also showed Japanese factory activity was unchanged in June, amid subdued demand and as companies struggled with rising costs due to the weak yen.
The yen fell to 161.27 on Friday, its weakest level since late 1986, leaving traders on alert for signs of intervention from Japanese authorities.
The euro hit a more than two-week high of $1.076175 in early Asian hours, leaving the dollar index, which measures the U.S. unit against six rivals, slightly lower at 105.59.
In commodities, oil prices rose slightly, with Brent futures up 0.39% at $85.33 per barrel and US West Texas Intermediate crude futures up 0.42% to $81.88. [O/R]
(Editing by Stephen Coates)
