Asian stocks fell as concern over France’s political crisis stoked anxiety in global markets, while traders awaited policy decisions from major central banks due this week.
Equity benchmarks in Japan and South Korea declined while those in Australia fluctuated. Benchmark 10-year Treasuries slipped and US equity futures were little changed. Markets including Singapore, India and Indonesia are closed for holidays.
The flight to haven assets came as risk sentiment turned sour, with a gauge of global stocks falling the most in two weeks as the fallout from France’s snap parliamentary election threatened to spill over into the rest of the European Union. The greenback inched higher and traded around its highest since November. The euro steadied after falling the most in two months last week. French bond futures edged lower in early Asian trading. Last week, the spread between French and German bonds widened the most on record.
“The investor uncertainty over ballot boxes shows up again – with the last two weeks highlighting the risks of volatility despite expectations for governmental changes – start with South Africa, continue to Mexico and now throw in Europe with the surprise French election,” said Bob Savage, head of markets strategy and insights at BNY Mellon. “In the next month, fears are rising about snap election risks in Japan and Germany given the weak government support showing up in polling there.”
The People’s Bank of China is expected to inject some extra cash when it rolls over its medium-term lending facility on Monday, but most economists project it will leave the rate on the funds unchanged at 2.5 per cent. The decision comes ahead of key data including industrial production, retail sales, home prices and property investment as policy makers implement measures to prop up the real estate market.
“The market will pay particular interest to housing price data, seeking evidence that the government’s recent efforts to stabilize the downward spiral in the property market are taking effect after 10 straight months of falling house prices,” Tony Sycamore, market analyst at IG Australia Pty, wrote in a note.
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Political risks
A coalition of France’s left-wing parties presented a manifesto to pick apart most of Macron’s seven years of economic reforms and set the country on a collision course with the EU over fiscal policy. Far-right leader Marine Le Pen said she won’t try to push out President Emmanuel Macron if she wins France’s snap parliamentary election, in an appeal to moderates and investors.
Days after the Federal Reserve pared back projections for US monetary easing this year, policymakers from the UK to Australia are likely to signal this week that they’re still not convinced enough about disinflation to start lowering borrowing costs themselves. Emerging market policy makers, including in Indonesia and Brazil, are also likely to push back on rate cut expectations.
Federal Reserve Bank of Minneapolis President Neel Kashkari at the weekend said the central bank can take its time and watch incoming data before starting to cut interest rates, echoing sentiment from Cleveland Fed President Loretta Mester who still sees inflation risks as tilted to the upside.
US stocks struggled to gain traction Friday (Jun 14) after a gauge of consumer sentiment sank to a seven-month low as high prices continued to take a toll on views of personal finances. The S&P 500 closed mildly lower, led by a drop in industrial shares. Tech outperformed, with Adobe Inc. up 15 per cent on a strong outlook. The Stoxx Europe 600 slid 1 per cent, while France’s CAC 40 Index extended losses to over 6 per cent last week, the most since March 2022.
This week, traders will also be watching inflation readings in Europe and the UK to help finesse bets on the global monetary policy outlook. Meantime, a swath of Federal Reserve officials including Dallas Fed President Lorie Logan, Chicago Fed President Austan Goolsbee and Fed Governor Adriana Kugler are due to speak.
In commodities, oil held its biggest weekly advance since early April as traders waited for Chinese trade data that will provide a snapshot on the economic strength of the world’s top crude importer. BLOOMBERG
