Euro Gains on French Vote, China Eyed After PMI: Markets Wrap

(Bloomberg) — The euro strengthened on signs Marine Le Pen’s far-right party is unable to govern outright following the first round of France’s legislative elections. Asian stocks will be in focus amid further signs China’s economy is struggling.

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Initial election results showed Le Pen’s National Rally won with a smaller margin than some polls had indicated with opponents already strategizing how to keep the far-right party out of power. The euro rose in Asian trading after the results lifted concerns that a very strong showing for Le Pen’s party would have increased the odds of expansive fiscal policy, further muddying the outlook for the common currency.

“A scenario where NR could rule on its own now looks less likely,” which lifted the euro as concerns on fiscal largess eased, said Rodrigo Catril, a strategist at National Australia Bank in Sydney. “We now need to wait and see how the second round shapes up and if other parties can cobble together a united opposition to RN.”

Japanese stocks rallied at the open, while futures contracts in Hong Kong slipped. Investors will have a keen eye on Chinese stocks Monday after factory activity contracted for a second straight month in June. The private Caixin China manufacturing PMI release is also scheduled later Monday.

The moves came as concerns lingered on whether Asia’s stock rally can persist. While the MSCI Asia Pacific index rose 2.1% last quarter, its third straight quarterly gain, a souring Chinese economy saw the nation’s stocks enter a technical correction last week, while investors are concerned that the pace of Japan’s stock market rally may slow in the second half of the year.

Elsewhere in Asia, South Korean currency traders will be on tenterhooks amid fears of a lift in volatility as the won’s new trading hours come into effect. Confidence among Japan’s large manufacturers rose, data on Monday showed, leaving the door open for the Bank of Japan to consider an interest rate hike later this month. Yield for the nation’s 10-year benchmark bond rose three basis points.

One in three economists surveyed by Bloomberg expects a rate hike at the 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.

Economy Cooling

As the quarter ended in the US on Friday, a swath of data indicated the world’s 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. Treasuries edged lower Monday.

Traders will shift attention to European assets later Monday amid movements by Le Pen’s opposition to form alliances to block her right-wing party from gaining power at the second round of voting. Of interest will be bond markets after the extra yield investors demand to hold 10-year French notes over safer German debt rocketed to more than 80 basis points prior to the vote, levels last seen during the euro area’s sovereign debt crisis.

“If they start to look credible, then we could see French markets recover,” said Kathleen Brooks, research director at XTB Ltd. “If fears about a hard right government start to recede, we should see it in the French–German yield spread first.”

In corporate news, Boeing Co.’s shares will be front of mind when US markets open after it agreed on Sunday to purchase Spirit AeroSystems Holdings Inc. in an all-stock deal that values the company at $4.7 billion, according to people with knowledge of the transaction. Still, the US Justice Department will charge the company with criminal fraud, leaving the planemaker to choose between pleading guilty or taking the risk of going to trial.

In commodities, oil was little changed as traders gauged China’s economic outlook and geopolitical risks in Europe and the Middle East. Gold edged lower after it wavered on Friday as traders digested the US inflation data.

Key events this week:

Australia retail sales, Monday
Japan Tankan report, Monday
China Caixin manufacturing PMI, Monday
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
China Caixin services PMI, Wednesday
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
Poland rate decision, Wednesdsay
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
Brazil 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
Philippines CPI, Friday
Taiwan CPI, Friday
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, Frida