Asian Markets Edge Up Amid U.S. Rate Cut Optimism; French Elections Stir Political Waters
By Wayne Cole
SYDNEY (Multibagger) - Asian markets ticked higher on Monday, buoyed by growing confidence in a September U.S. rate cut, while the euro wobbled amid political uncertainty following France's elections, which hinted at a hung parliament.
In a surprising twist, a leftist alliance in France surged ahead of the far-right, disrupting Marine Le Pen's National Rally (RN) ambitions to command the government. This political shift relieved investors to some extent but introduced concerns about potential reversals of President Emmanuel Macron's pro-market reforms.
"Forming a government in France will be challenging. The most probable outcome now appears to be some form of coalition between parts of the left and Macron," said Holger Schmiedling, chief economist at Berenberg. "This could mean some reform rollbacks rather than further reforms. The situation is less dire than it could have been."
The euro slipped slightly to $1.0825, down from Friday's high of $1.0843 after a soft U.S. jobs report weakened the dollar. It also fell 0.25% against the Swiss franc to 0.9680 francs but remained stable against the yen at 174.00. Meanwhile, the dollar stood at 160.70 yen, just below its recent peak of 161.86.
Equities found support from hopes of an imminent U.S. policy easing. MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1%, trimming earlier gains after hitting a two-year high last week. The S&P 500 and Nasdaq futures both dipped 0.1%.
The earnings season kicks off later this week, with major banks like Citigroup, JP Morgan, and Wells Fargo set to report.
Friday's U.S. jobs report bolstered the case for a September rate cut from the Federal Reserve, with futures indicating a 77% probability of such a move. Markets are also pricing in 53 basis points of easing for this year, up from around 40 basis points a month ago.
"Three-month payroll growth plummeted to +177k from a previously reported +249k, driven by 111k of downward revisions," noted analysts at Goldman Sachs. "We still expect the FOMC to deliver its first cut in September, followed by quarterly cuts to a terminal rate of 3.25-3.5%."
Treasuries rallied on the report, with 10-year yields falling to 4.297% from a high of 4.4930% early last week.
Fed Chair Jerome Powell is scheduled to present his outlook before Congress on Tuesday and Wednesday, alongside several other Fed officials speaking this week. The main economic event will be the U.S. consumer price report on Thursday, where headline inflation is projected to slow to 3.1% from 3.3%, with core inflation steady at 3.4%.
Germany's inflation data is also due on Thursday, while China will release its consumer prices and trade figures this week.
In the commodity markets, gold held near one-month highs at $2,385 an ounce. Oil prices rose amid strong summer fuel demand and potential supply disruptions from Gulf of Mexico hurricanes. U.S. crude added 22 cents to $86.76 a barrel, while Brent crude rose 2 cents to $83.18 per barrel.
Analysis
Breaking It Down: How This Affects Your Finances
- U.S. Rate Cut Expectations: The anticipation of a September rate cut by the Federal Reserve means lower borrowing costs, which can stimulate economic activities. If you're considering a mortgage or loan, now might be a good time to lock in lower rates.
- Political Uncertainty in France: The unexpected leftist surge in France's elections introduces political instability, which can impact European markets. If you have investments in European stocks or funds, it's crucial to stay informed and possibly consult with a financial advisor.
- Currency Movements: The euro's slight dip against the dollar suggests potential volatility in foreign exchange markets. For those involved in international trade or holding foreign currency, this could affect profitability and purchasing power.
- Stock Market Movements: The slight uptick in Asian markets and the mixed performance of U.S. futures indicate cautious optimism. If you're an investor, it might be wise to maintain a diversified portfolio to hedge against potential market fluctuations.
- Commodity Markets: Rising oil prices due to strong demand and potential supply disruptions could increase costs for businesses and consumers. If you're budgeting for travel or business expenses, consider potential increases in fuel costs.
Understanding these dynamics can help you make informed decisions about your investments and financial planning. Staying updated on market trends and economic indicators is crucial for navigating these uncertain times.