European stocks and euro rally after French vote: Markets Wrap

(Bloomberg) — European stocks and the euro rallied on speculation Marine Le Pen’s far-right party will struggle to win an outright majority in French elections, easing investor concern that the region’s second-largest economy was headed for a more radical policy shift.

Most Read from Bloomberg

France’s CAC 40 Index jumped 2.6% after the first round of voting showed Le Pen’s National Rally leading President Emmanuel Macron’s centrist alliance by a smaller margin than some polls projected. A very strong showing for her party would have increased the odds of expansive fiscal policy in France, whose deficit already exceeds what’s allowed under European Union rules.

Europe’s Stoxx 600 Index climbed 1%, with banking stocks leading the advance. Societe Generale SA jumped 7.5%, while Credit Agricole SA rallied 5.1%. US equity futures were higher, signaling a positive opening on Wall Street later.

The euro climbed to its strongest level since mid June and the spread between yields on French 10-year bonds and equivalent German debt narrowed to the lowest in two weeks, reflecting a reduction in risk perceptions.

There is a sense of relief “that the far-right parties did not get the kind of majority that was feared,” Charu Chanana, a market strategist for Saxo Capital Markets in Singapore, told Bloomberg Television’s David Ingles and Stephen Engle.

France’s second round of voting will be held on July 7. The French political world is now embarking on a period of horse-trading. In constituencies where three people qualified for the runoffs, the third-placed candidate can withdraw to boost the chances of another mainstream party defeating the far right.

“With the result still uncertain for the second round, we are not in a rush to buy France and French names,” said Mohit Kumar, a strategist Jefferies. “However, an event risk is likely out of the way with an even more reduced probability of a Frexit scenario. The results are better than fears that neither far right nor the far left would have a free mandate to implement extreme policies. Hence, the immediate reaction is one of a relief rally.”

Japan’s Tankan

Asian shares gained, with South Korea’s benchmark gaining alongside Japan’s Topix. China’s 10-year bond yield fell to a record amid pessimism about the domestic economy.

Story continues

While central banks in Europe have begun easing policy, the door was left open to an interest-rate increase in Japan later this month after data on Monday showed that confidence among Japan’s large manufacturers rose. The yield on the nation’s 10-year bond rose one basis point to 1.06%.

One in three economists surveyed by Bloomberg predicts a rate hike at the Bank of Japan’s next gathering. The yen dropped to the lowest level since 1986 last week, prompting some analysts to flag a heightened risk of a rate move as Governor Kazuo Ueda has pledged to watch the yen’s impact on inflation closely.

In corporate news, Boeing Co. agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 a share in an all-stock deal that values the supplier at $4.7 billion, unwinding a two-decade separation as the embattled US plane-maker tries to fix is manufacturing defects. The US Justice Department will charge the company with criminal fraud, leaving the firm to choose between pleading guilty or taking the risk of going to trial, according to people familiar with the matter.

A swath of data indicated the US biggest economy is cooling without lasting damage to consumers. US consumer sentiment declined by less than initially estimated on expectations inflationary pressures will moderate and the Fed’s preferred inflation gauge marked its smallest advance in six months. Treasury 10-year notes were little changed on Monday.

“Going into the second half, there’s a lot of election election uncertainty and we think the dollar will be the best risk-off hedge,” Alex Loo, foreign exchange and macro strategist at TD Securities, told Annabelle Droulers and Shery Ahn on Bloomberg Television. “We do like its appeal as a safe-haven currency.”

In commodities, oil edged higher as traders weighed China’s economic outlook and geopolitical risks in Europe and the Middle East. Gold was little changed.

Key events this week:

• Eurozone S&P Global Eurozone Manufacturing PMI, Monday

• Indonesia CPI, Monday

• India HSBC Manufacturing PMI, Monday

• UK S&P Global / CIPS UK Manufacturing PMI, Monday

• US construction spending, ISM Manufacturing, Monday

• ECB President Christine Lagarde speaks, Monday

• Bundesbank President Joachim Nagel speaks, Monday

• RBA issues minutes of June policy meeting, Tuesday

• South Korea CPI, Tuesday

• Eurozone CPI, unemployment, Tuesday

• Fed Chair Jerome Powell speaks, Tuesday

• ECB President Christine Lagarde speaks, Tuesday

• Australia retail sales, Wednesday

• China Caixin services PMI, Wednesday

• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

• Poland rate decision, Wednesday

• US FOMC minutes, ISM Services, factory orders, trade, initial jobless claims, durable goods, Wednesday

• ECB President Christine Lagarde speaks, Wednesday

• New York Fed President John Williams speaks, Wednesday

• Sweden’s Riksbank issues minutes of June meeting, Wednesday

• Australia trade, Thursday

• UK general election, Thursday

• European Union provisional tariffs on China EVs set to be introduced, Thursday

• ECB publishes account of June’s policy meeting, Thursday

• US Independence Day holiday, Thursday

• Thailand CPI, international reserves, Friday

• Eurozone retail sales, Friday

• France trade, industrial production, Friday

• Germany industrial production, Friday

• ECB President Christine Lagarde speaks, Friday

• Canada unemployment, Friday

• US unemployment, nonfarm payrolls, Friday

• New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 1% as of 8:17 a.m. London time

• S&P 500 futures rose 0.3%

• Nasdaq 100 futures rose 0.4%

• Futures on the Dow Jones Industrial Average rose 0.3%

• The MSCI Asia Pacific Index rose 0.2%

• The MSCI Emerging Markets Index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.5% to $1.0765

• The Japanese yen was little changed at 160.99 per dollar

• The offshore yuan was little changed at 7.2987 per dollar

• The British pound rose 0.3% to $1.2677

Cryptocurrencies

• Bitcoin rose 2.3% to $63,342.16

• Ether rose 2.1% to $3,487.38

Bonds

• The yield on 10-year Treasuries was little changed at 4.40%

• Germany’s 10-year yield advanced five basis points to 2.55%

• Britain’s 10-year yield advanced four basis points to 4.21%

Commodities

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Matthew Burgess and Allegra Catelli.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.