Moving markets today: Asian stocks dip, euro weakens post EU far-right victory; oil up, focus this week on Fed, BOJ policy decisions, US inflation, UK jobs, and GDP data.
Asian stock markets saw a decline as investors adjusted their expectations regarding potential rate cuts by the Federal Reserve this year, influenced by the continuing tightness of the US labour market. The decision by French President Emmanuel Macron to call for snap elections added to broader political concerns, putting pressure on the euro. Trading activity in Asia was subdued due to public holidays in several key markets. The strength of the US dollar, driven by positive US jobs data, led to a slip in oil prices. Meanwhile, gold prices stabilized after dipping below the important $2,300 mark in the previous session. Macron’s surprise announcement of French elections following Marine Le Pen’s victory in the EU vote further affected the euro, which weakened against the US dollar amidst strong performances by far-right parties in the EU parliamentary elections. Japan’s Q1 GDP contraction was revised downwards, indicating a less severe economic downturn than initially estimated. Investors are closely anticipating the US Federal Reserve’s policy decision on Wednesday, along with the release of May’s US inflation figures. Additionally, attention will be on the latest UK jobs report on Tuesday and April GDP data on Wednesday. The FTSE 100 closed lower on Friday, with futures pointing towards a negative start for Monday’s trading. Here are five key takeaways for your day.
Macron’s surprise call for French elections following Marine Le Pen’s EU victory
In France, President Emmanuel Macron has called for immediate legislative elections later this month following his party’s significant defeat to Marine Le Pen’s far-right party in the European Union vote. Macron’s unexpected decision has caused considerable political turbulence in France, offering the far-right a newfound opportunity for substantial political influence after being sidelined for years. This move also poses a threat to weaken Macron’s presidency three years before its scheduled term end. Consequently, the euro weakened against the US dollar, and futures for the Stoxx Europe 600 index, representing the broader European region, also experienced a slight decline following the election outcome.
UK job market sees recovery following downturn: REC
The Recruitment and Employment Confederation found that the decline in permanent hiring by UK employers was the least severe in over a year in May. This signals a potential turnaround in the job market and is closely watched by the Bank of England for clues on interest rate cuts. Permanent hiring saw its smallest drop in 14 months, while temporary staff billings fell the least since January. Pay rates for permanent staff slightly slowed from April’s four-month high. Additionally, the pace of decline in job vacancies eased to its slowest in seven months, Reuters reported.
Japan’s Q1 GDP decline smaller than initially reported
Japan’s economy shrank less than first reported for the January-March period, due to revised figures showing higher capital spending and inventory data. This slight improvement gives some support to the central bank’s intention to raise interest rates again this year. The government’s updated GDP figures revealed a 1.8 per cent contraction, better than the 2 per cent decline initially announced in May.
Key events to watch this week
This week is pivotal for major interest rate decisions. The US Federal Reserve is expected to hold rates steady at a 23-year high of 5.25 per cent to 5.5 per cent, and the Bank of Japan is likely to keep its rates at 0 per cent to 0.1 per cent. US inflation data for May, set to be released just before the Fed’s Wednesday announcement, could reinforce expectations for future rate cuts, especially if it shows continued easing amid signs of economic slowdown.
In the UK, the latest jobs report on Tuesday will be closely watched to see if wage pressures are decreasing quickly enough to suggest a potential rate cut by the Bank of England in the near term. Additionally, April’s GDP data, due on Wednesday, is anticipated to reveal a slowdown following a strong 0.6 per cent growth in the first quarter.
The tech industry also has significant events lined up. Apple’s annual Worldwide Developers Conference will draw attention in Cupertino, while in the UK, the debut of Cambridge-based start-up Raspberry Pi on the London market will be a notable event, offering a boost to the struggling stock exchange.
Tesla’s annual shareholder meeting on Thursday will feature several key items, including a vote on Elon Musk’s controversial $56 billion compensation package, plans to relocate the company’s incorporation from Delaware to Texas, and the election of directors, including Musk’s brother, Kimbal. Proxy advisory firms ISS and Glass Lewis have already voiced opposition to Musk’s pay package.
Asian stocks sag in thin trading, euro falls on political uncertainty
Trading activity in Asia was subdued due to public holidays in Australia, China, Hong Kong, and Taiwan. Meanwhile, Japan’s Nikkei N225 index rose by 0.42 per cent, supported by a weaker yen.
The euro weakened, and both stock and bond futures fell on Monday after French President Emmanuel Macron called for a surprise election following a significant loss to the far-right in the European Union vote. The euro dropped 0.3 per cent in early Asian trading to a one-month low of $1.0764 and hit a 21-month low of 84.60 pence against the British pound.
EuroSTOXX 50 equity futures declined by 0.4 per cent, and French bond futures continued their steep fall from the end of last week. The FTSE 100 slipped 0.5 per cent on Friday, marking its fourth consecutive weekly loss, a pattern last seen in 2020. Futures suggest a bearish opening for Monday, with FTSE 100 futures down 0.75 per cent to 8200.5.
In the US, S&P 500 and Nasdaq futures both eased by around 0.03 per cent, while the dollar strengthened.
In commodities, oil prices rebounded, reversing earlier losses due to the stronger dollar. Brent crude futures edged up 0.13 per cent to $79.72 a barrel, and US West Texas Intermediate crude futures rose 0.16 per cent to $75.65 a barrel.
Spot gold increased by 0.30 per cent to $2,299.15 an ounce.