By Ankur Banerjee
SINGAPORE (Reuters) – Asian shares were weak on Monday as traders looked at the U.S. interest rate outlook, while the euro rose after the far-right won a smaller share of the vote in the first round of a surprise snap election in France than some polls had projected.
The euro rose 0.32% to $1.0747, while European stock futures rose 1% as exit polls showed Marine Le Pen’s eurosceptic National Rally party emerged ahead in the first round of French elections, but with fewer votes than some analysts had forecast.
The surprise vote has rattled markets as the far right, as well as the left-wing alliance that came second on Sunday, have promised big spending increases at a time when France’s high budget deficit has prompted the EU to recommend disciplinary measures.
“The outcome may not be as bad as the market feared,” said Michael Brown, senior strategist at Pepperstone.
“We’ve also seen a lot of rhetoric from other parties looking to perhaps withdraw candidates to try to prevent the National Rally from winning seats in the run-off next Sunday… The market may be finding some comfort in that.”
Attention now turns to next Sunday’s second round and will depend on how the parties decide to join forces in each of the country’s 577 electoral districts for the second round, leaving investors still uncertain and nervous.
“With this result, markets are facing another week of high uncertainty. Probably fear, as it is still possible that RN will win an absolute majority next week,” said Carsten Brzeski, global head of macroeconomics at ING in Frankfurt.
In Asia, MSCI’s index of Asia-Pacific shares outside Japan is down 0.18% to start the second half of the year after rising 7% so far in 2024. Japan’s Nikkei is up 0.57 %.
Meanwhile, China’s manufacturing activity fell for a second month in June, while services activity fell to a five-month low, an official survey showed on Sunday, keeping calls for more stimulus alive as the economy struggles to recover.
On the macroeconomic front, attention remains on whether and when the Federal Reserve will begin cutting rates, following data on Friday that showed U.S. monthly inflation remained unchanged in May.
In the 12 months through May, the PCE price index rose 2.6% after advancing 2.7% in April. Last month’s inflation readings were in line with economists’ expectations. They remain above the Federal Reserve’s 2% inflation target.
Still, markets are clinging to expectations of at least two rate cuts from the Federal Reserve this year, with a September cut estimated at a 63% probability, the CME FedWatch tool showed.
U.S. stocks closed lower on Friday after an initial rally failed. [.N]
Among currencies, the yen was trading around 160.98 per dollar after the government, in a rare unscheduled review of gross domestic product (GDP) data on Monday, said Japan’s economy shrank more than what was initially reported in the first quarter.
The data also showed Japan’s factory activity remained unchanged in June amid lackluster demand and as companies struggled with rising costs due to the weak yen.
The dollar index, which measures the U.S. dollar against six rivals, was down slightly at 105.65.
(Edited by Stephen Coates)