(Bloomberg) — The euro pared most of its early losses after initial projections showed a left-wing coalition was set to win the French legislative election, sowing worries about the nation’s finances. Asian stocks eyed a mixed start into a pivotal week for global markets. 

The euro slid as much as 0.4% in early trading as the New Popular Front was poised to garner the most seats in parliament, with Marine Le Pen’s far-right National Rally — which had been widely expected to win the most seats — seen coming in third, after President Emmanuel Macron’s centrist alliance. 

One of the bloc’s leaders, Jean-Luc Melenchon, has pledged the group will refuse to negotiate with others to form a government and won’t compromise on its plans, including a major increase in public spending, measures that would provoke a major clash with the European Union.

“The show of support for the left/far-left and calls by far-left leader Melenchon to enact the full hard-left NFP agenda will unsettle some investors,” Evercore ISI strategist Krishna Guha wrote in a note to clients. “But we view the outcome as broadly market-friendly, with National Rally-related risks disappearing for now and the left/far-left NFP set to fall far short of a majority with essentially no prospect of being able to enact its agreed alliance agenda.”

Meantime, Asian stocks are set for a mixed start. Federal Reserve Chair Jerome Powell’s congressional testimony and US inflation data arrive later this week. Traders will be looking to the two events to solidify bets policy easing could begin as early as September amid signs the US economy is cracking after a soft jobs report. 

Equity futures in Australia and China suggest declines when regular trading begins, while those in Japan indicate an early gain after the yen strengthened. US contracts slipped after the benchmark S&P 500 rose 0.5% on Friday to close at a fresh record, with traders looking past signals of a slowdown. 

Nonfarm payrolls rose by 206,000 in June and job growth in the prior two months was revised down by 111,000. The median forecast in a Bloomberg survey of economists called for a 190,000 increase. The unemployment rate climbed to 4.1%, the highest since 2021, and average hourly earnings cooled.

Australian bond yields fell in early trading after US Treasury 10-year yields fell eight basis points to 4.28% on Friday as traders priced the prospect of two Fed rate cuts this year. The dollar fell last week, its first drop in the past seven, giving up its gain since the June FOMC meeting.

“The good news for risk is that we are still at levels of growth, consumption and labor readings that largely say if the Fed are to ease, it’s because of risk management purposes,” Chris Weston, head of research at Peppersone Group wrote in a note to clients. “It’s when the market feels the Fed need to ease beyond neutral and to stimulate the economy that earnings estimates are chopped up, and equity typically goes into prolonged drawdown.”

In the US, President Joe Biden faces a fresh round of hazards from members of his own party as he seeks to salvage his embattled reelection bid and fend off calls from Democratic lawmakers to step aside. Biden registered his best showing yet in a Bloomberg News/Morning Consult tracking poll of battleground states, even as voters offered withering appraisals of his debate performance. 

US Election Day volatility has declined since the debate between Biden and his challenger Donald Trump, according to RBC strategist Amy Wu Silverman. 

“One interpretation: Markets (and polls) are pricing a decisive Trump victory. Using the 2016 playbook, this is a net positive for markets,” she wrote in a note Sunday. “And yet if you look to Trump’s policy statements on tariffs, immigration and perhaps even the independence of the Federal Reserve — these are arguably all vol-generating.”

Elsewhere this week, traders will be watching rate decisions in New Zealand and South Korea, as well as inflation readings in South America and the US. Earnings from major US banks including JPMorgan Chase & Co. are due, while Powell is set to deliver his semi-annual testimony on Capitol Hill on Tuesday, followed by a slew of Federal Reserve speakers. 

In commodities, oil settled near $83 a barrel on Friday to post its fourth weekly gain with declining US stockpiles and Hurricane Beryl extending crude’s early-summer rally. Gold jumped to a six week high.

Key events this week include: 

  • Indian Prime Minister Narendra Modi to visit Moscow, Monday
  • Fed Chair Jerome Powell delivers semi-annual testimony to the Senate Banking Committee, Tuesday
  • US Treasury Secretary Janet Yellen testifies to the House Financial Services Committee, Tuesday
  • Fed Vice Chair for Supervision Michael Barr, Governor Michelle Bowman speak, Tuesday
  • China PPI, CPI, Wednesday
  • Japan PPI, Wednesday
  • Fed Chair Jerome Powell testifies to the House Financial Services Committee, Wednesday
  • Chicago Fed President Austan Goolsbee and Fed Governor Michelle Bowman speak, Wednesday
  • BOE chief economist Huw Pill, BOE policy maker Catherine Mann speak, Wednesday
  • US CPI, initial jobless claims, Thursday
  • Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem speak
  • Japan industrial production, Friday
  • China trade, Friday
  • US University of Michigan consumer sentiment, PPI, Friday
  • Citigroup, JPMorgan, Wells Fargo and Bank of New York Mellon report quarterly earnings, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.1% as of 8:15 a.m. Tokyo time
  • Hang Seng futures fell 0.3%
  • S&P/ASX 200 futures fell 0.1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.1% to $1.0826
  • The Japanese yen was little changed at 160.68 per dollar
  • The offshore yuan was little changed at 7.2917 per dollar
  • The Australian dollar was little changed at $0.6747

Cryptocurrencies

  • Bitcoin fell 1.5% to $56,397.36
  • Ether fell 1.9% to $2,942.06

Bonds

  • Australia’s 10-year yield declined four basis points to 4.36%

Commodities

  • West Texas Intermediate crude was little changed
  • Spot gold fell 0.3% to $2,386.13 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Michael G. Wilson.

©2024 Bloomberg L.P.



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