Moving markets today: Asian markets mixed, euro falls amid post-election gridlock in France; focus on UK GDP, Wall Street earnings, Fed chair Powell’s testimony, and US CPI inflation
Asian stocks were mixed on Monday as optimism about a potential US rate cut in September faded. In Europe, the euro faced challenges due to political uncertainty from the French elections, which suggested a hung parliament. Wall Street finished strong on Friday. Oil prices remained stable, despite concerns over supply disruptions from closed Texas ports ahead of Tropical Storm Beryl, which may become a hurricane. Gold prices dipped slightly but stayed near recent highs after weak US data boosted expectations of a Fed rate cut in September. France is dealing with a hung parliament after an unexpected leftwing victory, complicating the formation of a new government. In the UK, new finance minister Rachel Reeves will outline tough economic growth measures in her first major speech since Labour’s election win. A survey indicated fewer British firms plan to raise prices, providing some relief to the Bank of England as it considers a rate cut next month. This week’s key events include the UK GDP update, Wall Street earnings, Fed Chair Powell’s testimony on Tuesday, the consumer price index on Thursday, and the Reserve Bank of New Zealand’s meeting on Wednesday. The FTSE 100 closed lower on Friday but is expected to open slightly higher on Monday.
Here are five key takeaways for your day.
Leftwing victory blocks far right in French election
France is facing a hung parliament and tough negotiations to form a government after an unexpected leftwing victory halted Marine Le Pen’s far-right plans.
With most votes counted on Sunday, the leftist Nouveau Front Populaire bloc won the most seats in the snap election, significantly impacting Le Pen’s Rassemblement National, which was close to securing a parliamentary majority.
This outcome underscores the success of the anti-RN strategy, where left and centre parties strategically withdrew their candidates from run-off ballots to block Le Pen’s party.
UK finance minister Reeves vows tough decisions to boost growth
In her first major address since Labour’s win last week, Britain’s new finance minister Rachel Reeves will announce her commitment to making “tough decisions” to stimulate economic growth on Monday. This includes swift measures to clear infrastructure bottlenecks and attract private investment.
“Last week, the British people voted for change. And over the past 72 hours I have begun the work necessary to deliver on that mandate,” she will say in a speech to business leaders, according to excerpts released by her Treasury department. “Where governments have been unwilling to take the difficult decisions to deliver growth – or have waited too long to act – I will deliver.” – Reuters reported.
BCC survey reveals fewer UK companies planning price increases
A recent survey reveals that fewer British businesses are planning to raise prices in the coming months, which could influence the Bank of England’s decision on potential interest rate cuts next month.
The British Chambers of Commerce found that 39 per cent of surveyed companies expect price hikes in the next three months, down from 46 per cent in April.
This signals a positive economic trend as new Prime Minister Keir Starmer assumes office. The survey also showed that sales and cash flow have rebounded to levels seen before the pandemic during the second quarter of 2024. Additionally, 58 per cent of firms anticipate an increase in turnover over the next year, up from 56 per cent in April.
Despite these improvements, 75 per cent of surveyed firms reported no increase in investment, with significant differences across sectors—42 per cent in transport and logistics compared to only 19 per cent in retail.
What to watch this week
This week’s economic calendar is relatively quiet, with the main highlight being the monthly update on UK GDP.
However, corporate news will be active as Wall Street gears up for the start of earnings season, beginning with reports from Citigroup, JP Morgan, and Wells Fargo later in the week.
Federal Reserve Chair Jerome Powell is set to testify before Congress on Tuesday, a significant event for market watchers. On Thursday, attention will turn to the release of the monthly consumer price index, providing crucial insights into inflation trends.
Additionally, the Reserve Bank of New Zealand is expected to keep its policy rate steady at 5.50 per cent during its meeting on Wednesday, July 10th.
Asia shares mixed; euro affected by French election stalemate
Asian stocks faced declines on Monday morning, primarily due to significant sell-offs in Chinese shipping companies, which led to underperformance in Hong Kong’s stock market. The Hang Seng index dropped by 1.3 per cent, driven by a sharp 6.7 per cent decline in Orient Overseas International, a subsidiary of Cosco Shipping. Meanwhile, Japan’s Nikkei N225 remained stable near its all-time high.
In mainland China, the CSI 300 index slipped by 0.3 per cent, marking the first time in 2024 that the index has fallen into negative territory since February. Cosco Shipping experienced notable losses, with its shares falling by over 7 per cent.
On Wall Street, stocks closed higher on Friday, with both the Nasdaq and S&P 500 reaching record highs. Weaker-than-expected US labour market data bolstered expectations of potential interest rate cuts starting as early as September. Futures for the S&P 500 and Nasdaq showed slight declines of 0.1 per cent.
In Europe, futures for the EURO STOXX 50 decreased by 0.18 per cent, while the FTSE 100, which had a 0.45 per cent decline on Friday, futures indicated a positive opening on Monday with a 0.11 per cent increase to 8,228.0 points.
In currency markets, the Japanese yen strengthened by 0.2 per cent against the dollar to ¥160.38 following reports of rising wages but falling real earnings due to persistent inflation. Sterling continued to rise against the dollar, reaching a 3-1/2-week high, as the British currency extended its gains after the Labour Party’s significant election victory last week, ending 14 years of Conservative rule.
The dollar index, which measures the dollar against major currencies, held steady at 104.97, recovering slightly after a 0.9 per cent decline last week exacerbated by disappointing US jobs data on Friday.
In commodity markets, gold remained near one-month highs, trading at $2,385 per ounce. Oil prices edged higher due to robust summer fuel demand and concerns over potential disruptions from hurricanes in the Gulf of Mexico. Brent crude added 22 cents to reach $86.76 per barrel, while US crude oil rose by 2 cents to $83.18 per barrel.