By Wayne Cole
SYDNEY (Reuters) – Asian shares rose on Monday as investors grew more confident about a U.S. interest rate cut in September, while the euro faced political uncertainty after French elections signaled a hung parliament.
In France, a left-wing coalition unexpectedly took first place, ahead of the far right, a major upset that would have prevented Marine Le Pen’s National Rally party from running the government.
The far-right’s loss was a relief to investors, although they also had concerns that the left’s plans could lead to a rollback of many of President Emmanuel Macron’s pro-market reforms.
“It will be difficult for France to form a government, and the most likely outcome now is some sort of arrangement between parts of the left and Macron,” said Holger Schmidling, chief economist at Berenberg.
“This may mean some rollback of reforms rather than more reforms. I would say the outcome is less bad than it could have been. It could have been much worse.”
The single currency fell slightly in reaction to the $1.0825 level, after reaching $1.0843 on Friday when a weak U.S. jobs report undermined the dollar.
The euro also fell 0.25% against the Swiss franc to 0.9680 francs, but was steady against the yen at 174.00 yen. The dollar was steady at 160.70 yen, just off its recent high of 161.86.
Stocks were supported by hopes that monetary policy easing in the United States is imminent. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1%, paring earlier gains, after hitting a two-year high last week.
It remained stable near record highs.
Nasdaq futures and the Dow Jones Industrial Average were down 0.1%. Earnings season starts later this week when Citigroup, JPMorgan and Wells Fargo report.
Investors viewed Friday’s jobs report as adding to the case for a Federal Reserve rate cut in September, with futures now indicating a 77% chance of such a move.
Markets are also pricing in 53 basis points of easing this year, up from about 40 basis points a month ago.
“Wage growth in the three months fell sharply to +177K from +249K previously reported, driven by 111K downward revisions,” Goldman Sachs analysts wrote.
“We continue to expect the FOMC to cut rates for the first time in September, followed by quarterly cuts to a final rate range of 3.25% to 3.5%.”
US Treasuries rose on the report, with the yield on the 10-year Treasury note falling to 4.297% after hitting 4.4930% early last week.
Federal Reserve Chairman Jerome Powell will have the opportunity to offer his views when he appears before Congress on Tuesday and Wednesday, while several other Fed officials are speaking this week.
The main economic event will be the US consumer price report on Thursday, with headline inflation expected to slow to 3.1% from 3.3%, with the core rate holding steady at 3.4%.
German inflation data is due out on the same day, while China releases consumer price and trade figures this week.
In commodity markets, gold held near a one-month high of $2,385 an ounce.
Oil prices rose on strong summer fuel demand and potential supply disruptions due to hurricanes in the Gulf of Mexico.
The price of a barrel of Brent crude oil rose 22 cents to $86.76, while it rose 2 cents to $83.18.
