(Bloomberg) — European stocks and the euro fell after the unexpected result of France’s snap election stoked concerns about the country’s deteriorating financial conditions.
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France’s CAC 40 underperformed the pan-European STOXX 600 after a surprise win by a left-wing coalition in French legislative elections. European bonds mostly fell, with the yield on French 10-year bonds rising by about three basis points.
While France’s New Popular Front party, which includes the Socialists, came first in the weekend vote, financial market losses were tempered by news that no party won the majority needed to govern. The result is likely to limit the influence of the left-wing coalition and Marine Le Pen’s National Rally, both of whom advocate higher public spending.
“Political deadlock looms at a time when France really needs to take strong action to address its fiscal position. Markets will not like a far-left government having a say,” said Chris Weston, head of research at Pepperstone Group Ltd. However, the lack of an absolute majority for the left means that “getting the NFP statement passed in full will be a real challenge, and while uncertainty is high again, this should contain the fallout.”
Despite concerns about rising government spending, French government bonds have underperformed their German counterparts. But in a sign of easing tensions, the spread between French and German government bonds has begun to narrow. The gap between French and German 10-year yields, a measure of credit risk, is now around 70 basis points, below the levels seen at the peak of the market’s sell-off last month.
The New Popular Front — which includes the Socialists and the far-left France Insoumise party — won 178 seats in the National Assembly, according to data compiled by the interior ministry. Marine Le Pen’s National Rally, which pollsters had predicted would win last week’s election, came in third with 143 seats, while President Emmanuel Macron’s centrist coalition won 156.
U.S. stock futures retreated after a rally last week on Wall Street, with Federal Reserve Chairman Jerome Powell’s congressional testimony and U.S. inflation data among the main events this week. Traders will be looking to both to bolster bets that monetary policy easing could begin as early as September.
Treasury yields rose and the dollar stabilized after falling last week.
Major U.S. banks including JPMorgan Chase & Co. are also due to report earnings this week. In other corporate news, Boeing Co. agreed to plead guilty to criminal conspiracy to defraud the United States after the Justice Department concluded the planemaker failed to comply with a previous settlement stemming from two 737 Max crashes.
Meanwhile, President Joe Biden continues to salvage his faltering reelection bid, fending off calls from Democratic lawmakers to step down. Biden posted his best showing yet in a Bloomberg News/Morning Consult poll of swing states, even as voters gave him disappointing ratings of his debate performance.
Bitcoin’s value has fallen along with other cryptocurrencies on concerns about a potential token sale by creditors of the failed Mt. Gox exchange. In China, the central bank has sought to take greater control of market interest rates by announcing additional open market operations and tightening the range in which short-term interest rates can fluctuate.
In commodities, oil prices eased slightly after four straight weeks of gains, even as traders tracked the twin threats to crude production posed by a hurricane in the United States and wildfires in Canada. Gold was steady, and iron ore extended its slide from a one-month high.
Key events this week include:
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Indian Prime Minister Narendra Modi to visit Moscow on Monday
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Federal Reserve Chairman Jerome Powell delivers his semiannual testimony before the Senate Banking Committee on Tuesday.
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U.S. Treasury Secretary Janet Yellen testifies before the House Financial Services Committee on Tuesday.
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Federal Reserve Vice Chair for Supervision Michael Barr and Governor Michelle Bowman speak Tuesday.
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China CPI, Wednesday
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Japan Producer Price Index, Wednesday
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Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee on Wednesday.
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Chicago Fed President Austin Goolsbee and Fed Governor Michelle Bowman speak Wednesday.
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Bank of England Chief Economist Hugh Bell and Bank of England Policymaker Catherine Mann speak on Wednesday
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US CPI, Initial Jobless Claims, Thursday
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Atlanta Fed President Raphael Boucek and St. Louis Fed President Alberto Musallem speak
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Japan Industrial Production, Friday
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China trade friday
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University of Michigan Consumer Confidence Index, Friday
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Citigroup, JPMorgan, Wells Fargo and Bank of New York Mellon reported quarterly earnings on Friday.
Some key movements in the markets:
Stores
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The Stoxx Europe 600 index was down 0.1% as of 8:04 a.m. London time.
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S&P 500 futures fell 0.1%.
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Nasdaq 100 futures were little changed.
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Dow Jones Industrial Average futures fell 0.2%.
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The MSCI Asia-Pacific index of stocks fell 0.3%.
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The MSCI Emerging Markets Index rose 0.1%.
Currencies
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The Bloomberg Dollar Index was little changed.
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The euro fell 0.2% to $1.0823.
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The Japanese yen was little changed at 160.89 yen to the dollar.
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The offshore yuan was little changed at 7.2883 against the dollar.
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The pound was little changed at $1.2804.
Cryptocurrencies
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Bitcoin fell 3% to $55,567.3
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Ether price fell 3.1% to $2,906.81
Bonds
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The yield on the 10-year US Treasury note rose two basis points to 4.30%.
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The yield on German 10-year bonds rose three basis points to 2.58%.
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The yield on 10-year British bonds rose three basis points to 4.16%.
Goods
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Brent crude fell 0.5% to $86.14 a barrel.
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Spot gold fell 0.6 percent to $2,377.77 an ounce.
This story was produced with the help of Bloomberg Automation.
–With assistance from Michael J. Wilson, Matthew Burgess, and Michael Messika.
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