Asian Stocks Drop on Worries Over Global Risks: Markets Wrap

(Bloomberg) — Asian stocks fell in early trading as concern over a political crisis in France fanned anxiety in global markets, while a flurry of central bank decisions this week may signal delays to the long-awaited interest-rate easing cycle.

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Equity benchmarks in Japan, South Korea and Australia dropped. Benchmark 10-year Treasuries slipped while US equity futures were little changed in early trading. Gold rallied. French bond futures dropped.

The flight to haven assets came as risk sentiment turned sour, with a gauge of global stocks falling the most in two weeks as the fallout from France’s snap parliamentary election threatened to spill over into the rest of the European Union. The greenback inched higher and traded around its highest since November. The euro steadied after falling the most in two months last week.

Traders are “being guided on perceived risk through the aggressive widening of yield premium seen in the French 10-year bond yield over the German 10-year bund,” Chris Weston, head of research at Pepperstone Group in Melbourne, wrote in a note to clients. “The evolving theme in French politics continues to see market players attempting to price risk and uncertainty around the future French fiscal position.”

A coalition of France’s left-wing parties presented a manifesto to pick apart most of Macron’s seven years of economic reforms and set the country on a collision course with the EU over fiscal policy. Far-right leader Marine Le Pen said she won’t try to push out President Emmanuel Macron if she wins France’s snap parliamentary election, in an appeal to moderates and investors.

Days after the Federal Reserve pared back projections for US monetary easing this year, policymakers from the UK to Australia are likely to signal this week that they’re still not convinced enough about disinflation to start lowering borrowing costs themselves. Emerging market policy makers, including in Indonesia and Brazil, are also likely to push back on rate cut expectations.

Federal Reserve Bank of Minneapolis President Neel Kashkari at the weekend said the central bank can take its time and watch incoming data before starting to cut interest rates, echoing sentiment from Cleveland Fed President Loretta Mester who still sees inflation risks as tilted to the upside.

The People’s Bank of China is expected to inject some extra cash when it rolls over its medium-term lending facility on Monday, but most economists project it will leave the rate on the funds unchanged at 2.5%. The decision comes ahead of key data including industrial production, retail sales, home prices and property investment as policy makers implement measures to prop up the real estate market.

“The market will pay particular interest to housing price data, seeking evidence that the government’s recent efforts to stabilize the downward spiral in the property market are taking effect after 10 straight months of falling house prices,” Tony Sycamore, market analyst at IG Australia Pty, wrote in a note.

US stocks struggled to gain traction Friday after a gauge of consumer sentiment sank to a seven-month low as high prices continued to take a toll on views of personal finances. The S&P 500 closed mildly lower, led by a drop in industrial shares. Tech outperformed, with Adobe Inc. up 15% on a strong outlook. The Stoxx Europe 600 slid 1%, while France’s CAC 40 Index extended losses to over 6% last week, the most since March 2022.

Australian bonds were steady in early trading Monday.

In commodities, oil held its biggest weekly advance since early April as traders waited for Chinese trade data that will provide a snapshot on the economic strength of the world’s top crude importer.

This week, traders will also be watching inflation readings in Europe and the UK to help finesse bets on the global monetary policy outlook. Meantime, a swath of Federal Reserve officials including Dallas Fed President Lorie Logan, Chicago Fed President Austan Goolsbee and Fed Governor Adriana Kugler are due to speak.

Key events this week:

China property prices, retail sales, industrial production, unemployment, Monday
Philippines overseas remittances, Monday
Italy CPI, Monday
US Empire manufacturing, Monday
ECB Chief Economist Phillip Lane speaks, Monday
Philadelphia Fed President Patrick Harker speaks, Monday
Australia rate decision, Tuesday
Chile rate decision, Tuesday
Eurozone CPI, Tuesday
Singapore trade, Tuesday
US retail sales, business inventories, industrial production, cross-border investment, Tuesday
Richmond Fed President Thomas Barkin, Dallas Fed President Lorie Logan, Fed Governor Adriana Kugler, St. Louis Fed President Alberto Musalem, Chicago Fed President Austan Goolsbee, Tuesday
Japan trade, Wednesday
Bank of Japan issues minutes of April policy meeting, Wednesday
South Africa CPI, retail sales, Wednesday
UK CPI, Wednesday
Bank of Canada issues Summary of Deliberations, Wednesday
Brazil rate decision, Wednesday
New Zealand GDP, Thursday
China loan prime rates, Thursday
Indonesia rate decision, Thursday
Eurozone consumer confidence, Thursday
Norway rate decision, Thursday
Switzerland rate decision, Thursday
Eurozone finance ministers meet, Thursday
UK BOE rate decision, Thursday
US housing starts, initial jobless claims, Thursday
Japan CPI, Friday
Hong Kong CPI, Friday
India S&P Global Manufacturing PMI, Friday
Eurozone S&P Global Manufacturing PMI, S&P Global Services PMI, Friday
UK S&P Global / CIPS Manufacturing PMI, Friday
US existing home sales, Conf. Board leading index, Friday
Canada retail sales, Friday
Richmond Fed President Thomas Barkin speaks, Friday