A look at the current day in US and global markets from Mike Dolan An eventful but short week in the US kicks off the second half of 2024, with European markets rallying on Monday as the first round of US elections he French assembly indicates a hung parliament and political stalemate.
Although parties in France’s far-right coalition won the majority of votes in Sunday’s first round, as expected, the percentage was lower than last-minute polls had predicted and the grouping appears unlikely to have an overall majority at the end of the process.
Partly because of the high turnout, next Sunday’s second round of voting will see more than half of parliamentary seats contested by three candidates – meaning tactical voting to exclude the far right will likely affect their overall result.
This suggests a result of messy parliamentary mathematics that stands in the way of meaningful policy initiatives, not to mention three more years of ‘cohabitation’ with the powerful Presidency.
Given the fears of a ‘worst case scenario’ of a wave of unfunded tax cuts by the former National Front and its allies, not to mention tense battles with Brussels, investors have breathed a partial sigh of relief that things seem less confusing than they seem.
France’s benchmark CAC40 stock index jumped more than 2% on Monday, recouping losses after the snap election announcement nearly a month ago and returning to positive territory for the year.
The risk premium on 10-year French government bonds over German equivalents has fallen to 72 basis points, from 12-year highs of around 85 basis points on Friday.
The euro jumped more than half a cent against the dollar, reaching its best levels in more than two weeks.
This sent the dollar back across the board – with the French results perhaps delaying the reaction to May’s US PCE inflation report.
This saw US core inflation come in slightly below the 0.1% expected for the month, and the annual core rate fall to 2.6% for the first time in three years.
German state inflation numbers for June also point to a further easing of price pressures nationwide.
However, Federal Reserve officials do not appear to be ready to accept a month-long return to disinflation, and many have insisted that months of similar data are needed to convince them that it is safe to cut interest rates.
The European Central Bank has already cut rates this year and looks set to cut at least one more before the Fed makes its first move.
ECB President Christine Lagarde will speak at the bank’s annual forum in Sintra, Portugal, later on Monday, and will be joined by Fed Chairman Jerome Powell on Tuesday.
The Bank for International Settlements sent a hawkish message on Sunday, warning that rising government debt levels, coinciding with a series of key elections this year, could send global financial markets reeling.
“Governments need to reduce the rise in public debt and accept that interest rates may not return to their pre-pandemic lows,” he said. “We need a solid foundation to build on,” BIS Managing Director Agustin Carstens said.
The rest of the week in the US is interrupted by the Independence Day holiday on Thursday, but it is packed with important labor market data, some of which are pushed up a day because of the holiday. For example, the JOLTs job openings release is due on Tuesday and the weekly unemployment report is due on Wednesday — but the national payrolls report is on Friday, as usual.
Elsewhere, the UK will hold a general election while the US will be absent on Thursday.
Sterling and UK shares were firmer on Monday, with polls still indicating a large majority of more than 200 seats for the opposition Labor Party.
The Japanese yen, meanwhile, continued to flirt with 38-year lows above 161 per dollar – with no sign of official intervention.
Stock futures and U.S. bond yields were higher before Monday’s open. Key developments that should provide greater direction to US markets on Monday: * June US manufacturing surveys by ISM and S&P Global * Speech by New York Federal Reserve President John Williams; Speech by the President of the European Central Bank, Christine Lagarde, at the annual ECB forum in Sintra, Portugal * US Treasury sells 3 and 6 month bonds
