Moves in the markets were mostly modest. MSCI’s broadest index of Asia-Pacific shares excluding Japan was down 0.5% in a market with reduced volume. Chinese stocks fell 1.2% after Monday’s close, and the yuan hit its lowest in seven months. By contrast, the Japanese Nikkei rose 0.3% and South Korean stocks rose 0.4%.
EUROSTOXX 50 futures also rose 0.2%, stabilizing after Monday’s pullback, while FTSE futures were flat. The euro, French equities and government debt were hit as investors assessed the possibility of the right repeating its success in the French elections and the influence that far-right parties could have on the new European Union executive.
Bond yields in Europe are rising, highlighting the widening spread between French and German debt, following a poll that suggested the far-right National Rally could win early elections, although without a clear majority.
Data: what the market analyzes
The market has so far shown resistance to the rise in US yields, which came after Friday’s jobs report and declining expectations of rate cuts from the Federal Reserve. “We see less prospects for easing this year, and now we don’t expect the first Fed cut until November,” the JPMorgan analysts said.
“Equities appear to be ignoring the plethora of risks, including politics, geopolitics, market concentration and the rise of meme stocks and cryptocurrency trading, which may signal a bubble“, they added. “For this reason, we maintain a defensive inclination in our model portfolio.”
Futures imply 38 basis points of Fed easing this year, up from 50 basis points before the jobs report. The Fed is considered certain to leave rates unchanged at its policy meeting on Wednesday, and attention will focus on whether it keeps three rate cuts in its projections for this year.
“We expect the points to show two cuts in 2024, four cuts in 2025, three cuts in 2026 and a slight rise in the long-term neutral rate,” analysts at Goldman Sachs. “We think Fed leaders would prefer a two-cut base case to maintain flexibility, but a one-cut base case is a possible risk, especially if core CPI surprises higher on Wednesday.”
Inflation
The consumer price index (CPI) is expected to rise 0.1% in May, but the core index is expected to rise 0.3%. In currency markets, the euro stabilized around $1.0768, after hitting a one-month low of $1.0733. It has lost about 1.1% in the last two sessions, weighed down by US employment reports and political uncertainty.
Thus, the dollar remains at 157.27 yen, just below its maximum of 157.715 reached in May. The yen’s weakness is one reason why the Bank of Japan could decide to reduce its bond purchases at Friday’s policy meeting, in advance of another rate hike.
Gold is just above one-month lows, at $2,302 an ounce, after suffering a setback due to the decline in market prices due to rate cuts in the United States. Oil prices consolidate Monday’s 3% rise, as several investment banks pointed to strong summer fuel demand and possible purchases of US crude for their oil reserves.
Markets are also awaiting monthly oil supply and demand data to be released on Tuesday by the US Energy Information Administration and OPEC, and on Wednesday by the International Energy Agency. Brent fell 7 cents to $81.56 a barrel, while US crude was unchanged at $77.74 a barrel.
Source: Ambito
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