News
Stocks Steady, Euro Weak as Political Turmoil Damages Market Mood
By Lawrence White
LONDON (Reuters) – Stocks steadied on Monday while the euro remained on the defensive amid political turmoil in Europe, as investors looked for guidance in a series of central bank meetings in the region this week as well as new US economic data.
European shares recovered a fraction of last week’s losses when French President Emmanuel Macron called early elections, with banks leading the mini-rally on Monday, up 1% against a 0.2% rise. % in the STOXX benchmark index.
Macron’s surprise move came after far-right and left-wing parties gained ground against his centrist administration, raising investor concerns about a budget crisis and triggering a brutal sell-off in French markets.
The euro became emblematic of this distress, falling 0.04% to $1.07025, after falling to its lowest level since May 1, at $1.06678, on Friday.
European Central Bank policymakers told Reuters they had no plans to launch emergency purchases of French bonds to stabilize the market, after yield spreads on German bonds widened dramatically amid a flight to safety.
“A French challenge to the region’s tax arrangements would be problematic and have far-reaching implications,” JPMorgan analysts warned. “At this stage, the situation before the first round of voting is still very fluid.”
The central banks of Australia, Norway and the United Kingdom are expected to hold rates steady at meetings this week, although the Swiss National Bank (SNB) may ease given the Swiss franc’s recent strength.
Markets raised the probability of a cut to 75% as political uncertainty in France sent the euro to a four-month low of 0.9505 francs on Friday.
FRAGILE CHINA
Asian stock markets had earlier fallen as mixed Chinese economic news highlighted the country’s fragile economic recovery.
While retail sales beat forecasts thanks to a holiday boost, the flurry of data was largely negative, with Chinese blue chips falling 0.2% after industrial production and fixed asset investment disappointed.
U.S. stocks looked set to follow the subdued weather, with S&P 500 futures flat while Nasdaq futures rose 0.1% after a string of record closes.
Goldman Sachs analysts raised their year-end target for the S&P 500 to 5,600 from 5,200 to the current 5,431.
“Our earnings estimates for 2024 and 2025 remain unchanged, but stellar earnings growth from five mega-cap technology stocks offset the typical pattern of negative revisions to consensus EPS estimates,” they wrote in a note.
The week’s key US data will be May retail sales on Tuesday, where a 0.4% jump is expected after a 0.3% drop in April, while markets have a holiday on Wednesday.
The story continues
At least 10 Federal Reserve policymakers are expected to speak this week and will undoubtedly address market bets for two rate cuts this year.
Although the Fed itself issued an aggressive note last week, a trio of weak inflation numbers led futures to price in a 76% probability of a cut as early as September and 50 basis points of easing for the year.
The dollar was steady against the yen at 157.45 after briefly rising above 158.00 on Friday when the Bank of Japan said it would begin tapering bond purchases a little later than many had bet.
Japan’s Nikkei fell 1.9% on Monday as investors now face a six-week wait to hear details about the Bank of Japan’s upcoming tightening measures.
In commodity markets, gold fell 0.5% to $2,321 an ounce, reversing some of last week’s 1.7% rally. [GOL/]
Oil prices held firm after choppy economic data from China offset hopes of a boost in demand due to the northern hemisphere’s summer driving season.[O/R]
Brent rose 2 cents to $82.64 a barrel by 0812 GMT, while US crude also rose to $78.49 a barrel.
(Reporting by Lawrence White in London and Wayne Cole in Sydney; Editing by Sonali Paul, Jamie Freed and Sharon Singleton)