Written by Ankur Banerjee
SINGAPORE (Reuters) – Asian stocks were mixed on Monday as traders weighed the outlook for U.S. interest rates, while the euro rose after the far-right won a smaller share of the vote in the first round of a surprise snap election in France than some polls expected.
The euro rose 0.32% to $1.0747, while European stock futures rose 1% after opinion polls showed the Eurosceptic National Rally party led by Marine Le Pen leading in the first round of the French elections, but with fewer votes than some analysts expected.
The surprise vote sent markets into a tailspin as the far-right, as well as the left-wing coalition that came second in Sunday’s election, pledged big spending increases at a time when France’s soaring budget deficit has prompted the European Union to recommend disciplinary steps.
“The outcome may not have been as bad as the market feared,” said Michael Brown, chief strategist at Pepperstone.
“We’ve also seen a lot of rhetoric from other parties looking to withdraw candidates to try to avoid the National Rally winning seats in next Sunday’s runoff… Maybe the market will take some solace in that.”
The focus now turns to the run-off next Sunday, which will depend on how the parties decide to join forces in each of the country’s 577 electoral districts for the second round, leaving investors in a state of uncertainty and tension.
“With this result, markets are looking forward to another week of really high uncertainty. And perhaps fear, as the RN could still get an absolute majority next week,” said Carsten Brzeski, global head of macroeconomics at ING in Frankfurt.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.18%, kicking off the second half of the year after rising 7% so far in 2024. The index rose 0.57%.
Meanwhile, an official survey published on Sunday showed that manufacturing activity in China fell for the second month in a row in June, while services activity fell to the lowest level in five months, which keeps calls for more stimulus alive as it struggles. In which the economy returns to its normal path.
On the macro side, the focus remains on whether and when the Fed will start cutting interest rates, following data released on Friday that showed monthly US 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 readings were in line with economists’ expectations. They remain above the Fed’s 2% inflation target.
However, markets are still pricing in at least two Fed rate cuts this year with a 63% chance of a September cut, the CME FedWatch tool showed.
U.S. stocks ended lower on Friday after an early rally faded. (.n)
Among currencies, the yen traded at about 160.98 yen to the dollar after the government, in a rare, unscheduled revision of gross domestic product data on Monday, said Japan’s economy contracted more than initially reported in the first quarter.
Data also showed factory activity in Japan remained flat in June amid weak demand and as companies struggled with higher costs due to a weaker yen.
The index, which measures the US unit against six rivals, was last down at 105.65.