Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Take Five: Election nerves reach fever pitch

Published 07/01/2024, 02:38 AM
Updated 07/01/2024, 02:41 AM
© Reuters. People walk past campaign posters on election boards ahead of the June 30 and July 7 French legislatives elections, in Quiberon, western France, June 20, 2024. REUTERS/Sarah Meyssonnier/File Photo
EUR/USD
-
GBP/USD
-
FR10YT=RR
-

(Reuters) -European election fever is running almost as hot as Euro 2024 football tournament excitement, as this weekend's first round of voting in France promises to be market-moving, while Britain may see its first left-of-centre government in 14 years.

England, currently joint favourite with France, along with hosts Germany, are through to the quarter finals of the Euros. But the excitement is not just on the football pitch, or the polling booths. The coming week also brings the market's favourite data point - U.S. monthly employment figures.

Here is your look at what matters for markets in the coming week from Lewis Krauskopf in New York, Rae Wee in Singapore, Yoruk Bahceli in Amsterdam and Andres Gonzalez and Naomi Rovnick in London.

1/JOBS DAY

    Investors assessing when the Federal Reserve could start to  cut interest rates will get a critical economic datapoint with the monthly U.S. jobs report released on July 5.

    Economists are forecasting an increase of 180,000 jobs for the month of June. For May, non-farm payrolls increased by 272,000, far more than expected, underscoring the resilience of the labour market.

    The Federal Reserve held rates steady this month and pushed out the start of rate cuts to perhaps as late as December, as officials look for more convincing signs that inflation is moderating to the central bank's target, or evidence that the employment market is worsening.

    The latest consumer price index report showed U.S. consumer prices were unexpectedly unchanged in May.

2/FRENCH VOTE

Marine Le Pen's far-right National Rally (RN) party scored historic gains to win the first round of France's parliamentary election on Sunday, exit polls showed, but the final result will depend on days of horsetrading before next week's run-off.

Investors are unlikely to get much more clarity before the results of the second round vote on July 7. But a 577-constituency race where candidates just need 12.5% of the vote to make it to the second round, also featuring three-way races, means uncertainty may prevail.

Market jitters over fears of a spending surge have stabilised, helped by a signals from Marine Le Pen's far-right National Rally (RN), leading the polls, that it would be fiscally responsible.

Yet they are far from recovery. The closely-watched risk premium French bonds pay over Germany's is still over 25 basis points higher than before the election announcement. French bank stocks are sitting on double-digit losses.

Another worry for markets has been the left-wing alliance polling second, which many in the market now see as a bigger threat than the RN.

3/A MIXED M&A BAG

Global M&A volumes in the first half of 2024 have seen an uptick of 20% compared with 2023, and deals exceeding $5 billion have surged by 53%, according to data provided by Dealogic.

But for some dealmakers the glass is only half full.

Despite the recovery, deal volumes as of June 24 remain 15% below the last decade's average, largely impacted by the slowest Q2 in the Asia-Pacific region since 2009.

The number of deals announced in Q2, 2024 is the lowest of the past 16 years, even worse than in Q2, 2020, when COVID-19 forced a worldwide pause in M&A activity.

The remainder of the year looks bleak, with upcoming elections in France, Britain, and particularly in the U.S. causing corporate boards and private equity funds to reconsider their decisions.

Some investment bankers are wondering whether they should focus on 2025 instead, a year they finally hope will deliver the goods.

4/BRITISH BLUES

Polls predict a landslide British election win for the opposition Labour Party on July 4, boosting UK stocks and government bonds, as trade-weighted sterling has bounced back to levels not seen since 2016's Brexit vote.

Traders see a return to stability after heavy political turbulence during the Conservatives' 14-year rule and have speculated Labour leader Keir Starmer will rebuild trade links with Europe.

But Britain has vast fiscal challenges that neither Labour nor the Conservatives have clarified how they would solve, the Institute for Fiscal Studies think-tank said.

Economic growth is tepid, public debt-to-GDP has hit a 63-year high and taxation as a share of national income is approaching its highest since 1949.

If voters expect better public services without tax hikes and investors want government borrowing to stabilise, Starmer could find it tough to keep both sets of stakeholders on side.

5/STAND-OFF

Inflation readings across countries in emerging Asia scatter the data calendar, though with consumer prices seemingly coming to heel for most economies it begs the question of how much longer policymakers will need to keep rates higher for.

Yet their hands are tied, with a foot-dragging Federal Reserve and a towering dollar leaving little to no room for any imminent rate cuts in Asia.

It's that or running the risk of their currencies getting hammered further.

In Thailand, that dissonance has sparked a months-long spat between the central bank and government.

© Reuters. People walk past campaign posters on election boards ahead of the June 30 and July 7 French legislatives elections, in Quiberon, western France, June 20, 2024. REUTERS/Sarah Meyssonnier/File Photo

The latter insists an urgent rate cut would revive Southeast Asia's second-largest economy, while the Bank of Thailand (BOT) has said rates remain appropriate.

BOT Governor Sethaput Suthiwartnarueput speaks to the media on Thursday, and will likely reiterate the central bank's stance.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.