(Reuters) – European election fever is almost as hot as Euro 2024, as this weekend’s first round of voting in France promises to move the market no matter what the result, while Britain can see its first left. -Central government in 14 years.
Joint favourites France and England, along with hosts Germany, enter the last 16 of the European Championship. But the excitement is not limited to just the football pitches or the ballot box. Next week will also bring the market’s favourite data point: monthly US employment figures.
Below is an analysis of what matters for markets in the coming week from Lewis Krauskopf in New York, Rae Wee in Singapore, Yoruk Bahceli in Amsterdam and Andrés González and Naomi Rovnick in London.
1/WORK DAY
Investors weighing when the Federal Reserve might start cutting interest rates will receive critical economic data with the monthly U.S. jobs report, due out on July 5.
Economists are forecasting an increase of 180,000 jobs for the month of June. Nonfarm payrolls rose by a much larger-than-expected 272,000 in May, underscoring the resilience of the labor market.
The Federal Reserve held rates steady this month and delayed the start of rate cuts perhaps until December, as officials look for more convincing signs that inflation is moderating toward the central bank’s target, or evidence that the labor market It is getting worse.
The latest consumer price index report showed that consumer prices in the United States were unexpectedly unchanged in May.
2/FRENCH VOTE
France will go to the polls on Sunday, the first round of a surprising early election that has shaken the markets.
Investors will be watching for any hint of the results of the run-off on July 7. But a race in 577 electoral districts in which candidates need only 12.5% of the vote to advance to the run-off, which also features three candidates, means uncertainty may prevail.
Market jitters over fears of increased spending have stabilised, helped by signals from Marine Le Pen’s far-right National Rally party (RN), which is leading in the polls, that it would be fiscally responsible.
However, they are far from recovering. The closely watched risk premium paid by French bonds over German ones is still 25 basis points higher than before the election announcement. French bank stocks are down double-digit.
Another concern for the markets has been the second-place left alliance in the polls, which many in the market now see as a bigger threat than the RN.
3/A MIXED M&A BAG
Global M&A volumes in the first half of 2024 have seen a 20% surge compared to 2023, with transactions exceeding $5 billion up 53%, according to data provided by Dealogic.
But for some negotiators the glass is only half full.
Despite the recovery, transaction volumes as of June 24 remain 15% below the average over the past decade, largely impacted by the second slowest quarter in the Asia-Pacific region since 2009.
The number of announced deals in Q2 2024 is the lowest in 16 years, even worse than Q2 2020, when COVID-19 forced a global pause in M&A activity.
The rest of the year looks bleak, as upcoming elections in France, Britain and particularly the United States will cause corporate boards and private equity funds to reconsider their decisions.
Some investment bankers are wondering whether they should focus on 2025, a year in which they finally hope to deliver results.
4/BRITISH BLUE
Polls predict a landslide British election victory for the opposition Labor Party on July 4, boosting UK stocks and government bonds as the trade-weighted pound has recovered to levels not seen since the Brexit vote of 2016.
Traders see a return to stability after severe political turmoil during the Conservatives’ 14-year rule and have speculated that Labor leader Keir Starmer will rebuild trade links with Europe.
But Britain faces huge fiscal challenges that neither Labour nor the Conservatives have clarified how they would resolve, the Institute for Fiscal Studies think tank said.
Economic growth is tepid, the public debt-to-GDP ratio has hit a 63-year high, and taxes as a percentage of national income are approaching their highest level since 1949.
If voters expect better public services without tax rises and investors want government borrowing to stabilise, Starmer may find it difficult to keep both sets of stakeholders on side.
5/CONFRONTATION
Inflation readings in emerging Asia scatter the data calendar, although with consumer prices appearing to be declining in most economies, the question arises of how much longer authorities will need to keep rates higher.
However, their hands are tied, with a reluctant Federal Reserve and a sky-high dollar leaving little to no room for imminent rate cuts in Asia.
It’s either that or risk your currencies taking a bigger hit.
In Thailand, that dissonance has sparked a months-long dispute between the central bank and the government.
The latter insists that an urgent rate cut would revive Southeast Asia’s second-largest economy, while the Bank of Thailand (BOT) has said rates remain appropriate.
BOT Governor Sethaput Suthiwartnarueput is due to speak to the media on Thursday and is likely to reiterate the central bank’s stance.