By Wayne Cole
SYDNEY (Reuters) – Asian shares were cautious on Tuesday as investors considered fresh political uncertainty in European markets after right-wing gains in European elections and a French opinion poll renewed concerns about European Union unity.
Market movements were mostly muted, with the MSCI composite index of Asia Pacific shares excluding Japan falling 0.5% in thin trading. China’s blue chip stocks fell 1.2% in no trading on Monday, and the yuan hit a seven-month low.
Meanwhile, it rose 0.3%, while South Korean stocks added 0.4%.
EUROSTOXX 50 futures also rose 0.2%, stabilising and trading flat after Monday’s decline.
The euro, French stocks and government bonds were roiled as investors tried to gauge whether the right could pull off another victory in France’s elections and how much influence far-right parties might have in the European Union’s new executive.
Bond yields rose across Europe, with the gap between French and German government bond yields widening especially after opinion polls suggested the far-right National Rally party could win the general election, albeit short of a majority.
France’s opposition left-wing parties pledged late Monday to work together and nominate a joint candidate.
Meanwhile, the market had a muted reaction to Apple’s (NASDAQ:) much-anticipated AI move to integrate “Apple Intelligence” technology into its suite of apps. Shares of the iPhone maker were down 0.3% in after-hours trading after falling 1.9% during regular trading hours.
Nasdaq futures were both down 0.1% in Asian markets after modest gains on Monday.
So far, markets have proven surprisingly resistant to rising Treasury yields following Friday’s jobs report and fading expectations of a Federal Reserve interest rate cut.
“Outlook for monetary easing this year has receded and we now expect the Fed’s first rate cut to come in November,” JPMorgan analysts said.
“The stock market appears to be ignoring many risks, including politics, geopolitics, low market concentration, and the surge in meme stocks and cryptocurrency trading that could signal a bubble,” they added. “As such, we maintain a defensive bias in our model portfolios.”
One cut or two?
Futures markets are expecting the Fed to ease monetary policy by 38 basis points this year, down from the 50 basis points it was easing before the jobs report.
The Fed is expected to keep rates on hold at its policy meeting on Wednesday, with the focus shifting to whether it will stick with its “dot plot” forecast of three rate cuts this year.
“We expect two rate cuts in 2024, four cuts in 2025, three cuts in 2026 and a modest increase in longer-term or neutral interest rates,” Goldman Sachs analysts said in a note.
“We believe leadership would prefer two rate cuts to maintain flexibility, but one cut could be risky, especially if core CPI surprises on the upside on Wednesday.”
The Consumer Price Index (CPI) is expected to rise just 0.1% in May, while the core index is expected to rise 0.3%.
In the foreign exchange market, the euro stabilized at around $1.0768 after hitting a one-month low of $1.0733 overnight. The euro has fallen about 1.1% over the past two sessions on the back of the U.S. employment data and political uncertainty.
The dollar was broadly supported at 157.27 yen, just shy of its May high of 157.715 yen.
The weak yen is one reason the Bank of Japan may decide to scale back its bond purchases at its policy meeting on Friday as a step toward further interest rate hikes.
Gold prices tumbled to just above $2,302 an ounce, their lowest level in a month, as markets priced in a U.S. interest rate cut. [GOL/]
Oil prices held on to Monday’s 3% gain as various investment banks forecast strong fuel demand in the summer and further purchases of oil reserves.
Markets are also awaiting monthly oil supply and demand data from the U.S. Energy Information Administration and the Organization of the Petroleum Exporting Countries (OPEC) on Tuesday and from the International Energy Agency on Wednesday. [O/R]
Crude oil futures fell 7 cents to $81.56 a barrel, while U.S. crude was unchanged at $77.74 a barrel.
