By Wayne Cole
SYDNEY (Reuters) – Asian shares were cautious on Tuesday as investors pondered new political uncertainty in European markets after right-wing election gains and an early poll in France revived concerns about the bloc’s cohesion.
The moves were mostly modest, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 0.5% in weak trade. Chinese blue chips fell 1.2%, having been closed on Monday, while the yuan hit a seven-month low.
Conversely, they firmed 0.3% and South Korean shares rose 0.4%.
EUROSTOXX 50 futures also rose 0.2%, stabilizing after Monday’s pullback, although remaining flat.
The euro, French stocks and public debt took a hit after investors weighed whether the right can repeat its French election success and how much influence far-right parties can have over the new European Union executive.
Bond yields rose across Europe, with the spread between French and German debt widening notably, after an opinion poll suggested that the far-right National Rally could win early elections, although without a clear majority.
France’s left-wing opposition parties pledged on Monday night to work together and nominate joint candidates.
Elsewhere, markets have reacted quietly to Apple’s long-awaited AI strategy, which integrates “Apple Intelligence” technology into a suite of applications. Shares of the iPhone maker fell 0.3% in after-hours trading, having fallen 1.9% in regular hours.
and Nasdaq futures fell 0.1% in Asian trading after rising on Monday.
So far, the market has proven remarkably resilient to the jump in U.S. yields that followed Friday’s jobs report and waning expectations for rate cuts from the Federal Reserve.
“We see diminished prospects for easing this year and now expect the Fed’s first cut only in November,” JPMorgan analysts said.
“Stocks appear to be ignoring the plethora of risks including political, geopolitical, tight market concentration and the rise in meme stocks and crypto trading that could signal froth,” they added. “As such, we maintain a defensive bias in our model portfolio.”
ONE CUT OR TWO?
Futures imply 38 basis points of Fed easing for this year, compared with 50 basis points before the jobs report.
The Fed is considered certain to hold steady at its monetary policy meeting on Wednesday, with the focus on whether it will keep three rate cuts in its “dot plot” projections for this year.
“We expect the dots to show two cuts in 2024, four cuts in 2025, three cuts in 2026 and a slight rise in the neutral or long-term rate,” Goldman Sachs analysts said in a note.
“We think leadership would prefer a two-cut baseline to maintain flexibility, but a one-cut baseline is a possible risk, especially if the core CPI surprises to the upside on Wednesday.”
The consumer price index (CPI) is expected to rise just 0.1% in May, but with the core rising 0.3%.
In currency markets, the euro stabilized around $1.0768 after hitting a one-month low overnight at $1.0733. It has lost about 1.1% in the last two sessions, hurt by US jobs reports and political uncertainty.
The dollar was broadly supported at 157.27 yen and just below its May peak of 157.715.
The yen’s weakness is one of the reasons why the Bank of Japan (BoJ) may decide to reduce its bond buying at a monetary policy meeting on Friday, as a step towards another rate hike.
Gold was just above one-month lows at $2,302 an ounce after being hit by a pullback in market prices due to US rate cuts. [GOL/]
Oil prices consolidated Monday’s 3% rally as several investment banks pointed to strong summer fuel demand and potential purchases for their oil reserves.
Markets also await 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]
fell 7 cents to $81.56 a barrel, while U.S. crude was unchanged at $77.74 a barrel.
