Euro Climbs After French Vote, China Shares Slip: Markets Wrap

(Bloomberg) — The euro advanced with European stock-index futures on speculation Marine Le Pen’s far-right party will struggle to win an outright majority in French elections, easing investor concern that Europe’s second-largest economy was headed for a more radical policy shift.

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Futures on French government bonds edged higher, while those on German bunds dropped after the first round of voting showed Le Pen’s National Rally in front of President Emmanuel Macron’s centrist alliance, albeit less comfortably than some polls projected. A very strong showing for her party would have increased the odds of expansive fiscal policy in France, whose deficit already exceeds what’s allowed under European Union rules.

Asian shares were mixed, with South Korea’s benchmark gaining with Japan’s Topix, while most Chinese shares were lower. Chinese equities slipped after a report showed factory activity contracted for a second month in June. Hong Kong financial markets are shut for a holiday. China’s 10-year bond yield fell to a record amid pessimism about the domestic economy.

“We are starting off in Asia with that sense of relief that the far-right parties did not get the kind of majority that was feared,” Charu Chanana, a market strategist for Saxo Capital Markets in Singapore, told Bloomberg Television’s David Ingles and Stephen Engle.

In addition to French politics, investors will be looking to the European Central Bank for clues, she said, adding “there’s been some sense of stability for the euro zone economy after that first rate cut, but we certainly don’t look like we’re out of the woods yet.”

France’s second round of voting will be held on July 7. The French political world is now embarking on a period of horse-trading. In constituencies where three people qualified for the runoffs, the third-placed candidate can withdraw to boost the chances of another mainstream party defeating the far right.

Japan’s Tankan

Confidence among Japan’s large manufacturers rose, Tankan data on Monday showed, leaving the door open for the central bank to consider an interest-rate increase later this month. The yield on the nation’s 10-year bond rose 1.5 basis points to 1.065%.

One in three economists surveyed by Bloomberg predicts a rate hike at the BOJ’s 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.

In corporate news, Boeing Co. agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 a share in an all-stock deal that values the supplier at $4.7 billion, unwinding a two-decade separation as the embattled US planemaker tries to fix is manufacturing defects. The US Justice Department will charge the company with criminal fraud, leaving the firm to choose between pleading guilty or taking the risk of going to trial, according to people familiar with the matter.

A swath of data indicated the US 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. Treasury 10-year notes were little changed on Monday.

“Going into the second half, there’s a lot of election election uncertainty and we think the dollar will be the best risk-off hedge,” Alex Loo, foreign exchange and macro strategist at TD Securities, told Annabelle Droulers and Shery Ahn on Bloomberg Television. “We do like its appeal as a safe-haven currency.”

In commodities, oil was little changed as traders weighed China’s economic outlook and geopolitical risks in Europe and the Middle East. Gold was also little changed.

Key events this week:

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
Australia retail sales, Wednesday
China Caixin services PMI, Wednesday
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
Poland rate decision, Wednesday
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
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
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, Friday