Wayne Cole
SYDNEY (Reuters) – Asian shares traded within a narrow range on Tuesday as a right-wing election victory and early polls in France reignited concerns about EU cohesion and investors pondered fresh political uncertainty in European markets.
Trends were modest, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 0.4% in thin trading, with Chinese blue chips falling 0.7%.
In contrast, South Korean stocks rose 0.3% and rose 0.5%.
EUROSTOXX 50 futures also edged up 0.2%, stabilizing after retreating on Monday, while rising 0.1%.
The euro, French stocks and government debt were all shaken as investors assessed whether the right could repeat its success in France’s elections and how much influence far-right parties would have over the new European Commission.
Bond yields rose across Europe, with debt spreads widening significantly in France and Germany, after a poll showed the far-right national rally could win snap elections albeit without a clear majority.
Elsewhere, the market reacted tepidly to Apple’s (NASDAQ: ) long-awaited artificial intelligence strategy, which would integrate “Apple Intelligence” technology into a range of apps. The iPhone maker’s shares fell 0.3% in after-hours trading and were down 1.9% in regular trading.
Nasdaq futures both fell 0.1% in Asian trading after edging higher on Monday.
So far, the market has proven remarkably resilient to a rise in U.S. yields following Friday’s jobs report and a pullback in expectations for a rate cut from the Federal Reserve.
JPMorgan analysts said, “We believe the outlook for easing this year has weakened and now expect the Fed to cut interest rates for the first time in November.”
“Stock markets appear to be ignoring a plethora of risks, including politics, geopolitics, narrow market concentration and a surge in meme stock and cryptocurrency trading that could signal a bubble,” they added. “As such, our model portfolio remains defensive Sexually inclined.”
One knife or two?
Futures imply the Fed will implement 37 basis points of easing this year, compared with 50 basis points before the jobs report.
The Federal Reserve is expected to remain steady at its policy meeting on Wednesday, with the focus being on whether the three rate cuts in its “dot plot” forecast for this year will be maintained.
“We expect the points to point to two rate cuts in 2024, four cuts in 2025, three cuts in 2026, and a modest increase in long-term or neutral rates,” Goldman Sachs analysts said in a note.
“We think leadership would prefer two benchmark cuts to maintain flexibility, but one cut is a possible risk, especially if core CPI surprises higher on Wednesday.”
The consumer price index (CPI) in May is expected to edge up 0.1%, but with a core increase of 0.3%.
In currency markets, the euro-dollar exchange rate stabilized near $1.0766 after hitting a one-month low of $1.0733 overnight. The stock has fallen about 1.1% over the past two sessions, weighed down by U.S. jobs reports and political uncertainty.
USD/JPY is broadly supported at 157.17 and just below the May high of 157.715.
The weak yen is one reason the Bank of Japan (BoJ) may decide to scale back its bond purchases at its policy meeting on Friday as a step towards another interest rate hike.
Gold prices were slightly above a one-month low of $2,306 an ounce, after being hit by a pullback in market pricing due to U.S. interest rate cuts. [GOL/]
Oil prices consolidated a 3% gain on Monday as several investment banks forecast strong summer fuel demand and possible purchases of oil reserves.
Markets are also awaiting monthly oil supply and demand data from the U.S. Energy Information Administration and OPEC on Tuesday and the International Energy Agency on Wednesday. [O/R]
It fell 4 cents to $81.59 a barrel, while U.S. crude was unchanged at $77.74 a barrel.
