Euro, Stocks Weaken as Unease Over France Grows: Markets Wrap

(Bloomberg) — European assets extended Monday’s losses as jitters over political upheaval in France continued. US Treasuries gained before inflation data and the Federal Reserve’s interest rate decision on Wednesday.

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The euro edged lower and the Stoxx 600 fell for a third day. US equity futures dropped. Ten-year Treasury yields fell four basis points as investors sought safe haven assets.

The biggest moves were in French markets. The yield on 10-year notes jumped as much as 10 basis points to 3.32%, putting them on course for the biggest two-day increase since March 2020. The selloff has widened the spread over equivalent German bonds to 64 basis points, the highest since October on a closing basis.

Traders were focused on speculation that President Emmanuel Macron has been discussing his resignation if his party performs poorly in upcoming legislative elections. A person close to Macron denied the report.

The vote slated later this month risks becoming the ultimate showdown over Macron’s trademark economic policies, which had largely reassured investors since he took office in 2017. Macron called the election on Monday after far-right rivals won the biggest share of French votes in the weekend’s European Parliament election.

“The risk that France’s parliament may be led by the far-right may focus attention on France’s dismal fiscal situation, which could shake up the euro,” said Jane Foley, head of FX strategy at Rabobank. “We see French politics as another reason to expect that the euro is set ot remain lower for longer.”

Separately, global investors are preparing for the likelihood of another volatile session Wednesday with both the latest monthly print for US consumer prices and Fed decision due.

While policymakers are widely expected to keep borrowing costs on hold, there’s less certainty on officials’ rate projections. A 41% plurality of economists expect policymakers to signal two cuts in their “dot plot,” while an equal number expect the forecasts to show just one or no cuts at all, according to the median estimate in a Bloomberg survey.

“Even if we just get one cut this year, I think we’re just cashing out,” BlackRock Global Chief Investment Strategist Wei Li told Bloomberg TV. “The equity market can take it because we really focusing on the earnings and growth piece, which has been driving equities rather than rates this year.”

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Among US single stocks, Apple Inc. is set to extend losses after the iPhone maker’s debut of long-awaited artificial intelligence features failed to enthuse traders.

In the UK, an unexpected rise in the jobless rate boosted the outlook for rate cuts later this year. Traders are fully pricing in the first quarter-point reduction by November and see around a 40% chance of a second decrease the following month.

In a separate development, the country attracted over £104 billion ($132 billion) of orders for bonds in a record for gilt sales.

Key events this week:

• China PPI, CPI, Wednesday

• Germany CPI, Wednesday

• US CPI, Fed rate decision, Wednesday

• G-7 leaders summit, June 13-15

• Eurozone industrial production, Thursday

• US PPI, initial jobless claims, Thursday

• Tesla annual meeting, Thursday

• New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday

• Bank of Japan’s monetary policy decision, Friday

• Chicago Fed President Austan Goolsbee speaks, Friday

• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.6% as of 12:04 p.m. London time

• S&P 500 futures fell 0.3%

• Nasdaq 100 futures fell 0.3%

• Futures on the Dow Jones Industrial Average fell 0.4%

• The MSCI Asia Pacific Index fell 0.5%

• The MSCI Emerging Markets Index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.2% to $1.0741

• The Japanese yen was little changed at 157.10 per dollar

• The offshore yuan was little changed at 7.2718 per dollar

• The British pound was little changed at $1.2743

Cryptocurrencies

• Bitcoin fell 4% to $66,807.82

• Ether fell 3.9% to $3,529.15

Bonds

• The yield on 10-year Treasuries declined four basis points to 4.43%

• Germany’s 10-year yield declined one basis point to 2.66%

• Britain’s 10-year yield declined three basis points to 4.29%

Commodities

• Brent crude fell 0.3% to $81.42 a barrel

• Spot gold fell 0.2% to $2,307.02 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Allegra Catelli and Naomi Tajitsu.

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