Investor demand for haven assets rose as jitters over political upheaval in Europe intensified. US Treasuries gained before inflation data and the Federal Reserve’s interest rate decision on Wednesday.
The euro and Stoxx 600 extended losses for a third day. US equity futures dropped, while 10-year Treasury yields fell four basis points. The dollar edged higher.
The biggest moves were in French markets. The yield on 10-year notes jumped as much as 10 basis points to 3.32%, putting them on course for the biggest two-day increase since the early months of the pandemic. The move has widened the spread over equivalent German bonds to the highest since October on a closing basis.
Italian debt, considered among the euro-area’s riskiest, were also swept up in the rout, with spreads over bunds jumping to 150 basis points.
Traders were focused on speculation that President Emmanuel Macron has been discussing resigning if his party performs poorly in upcoming legislative elections. A person close to Macron denied the report.
The vote slated later this month risks becoming the ultimate showdown over Macron’s trademark economic policies, which had largely reassured investors since he took office in 2017. Macron called the election on Monday after far-right rivals won the biggest share of French votes in the weekend’s European Parliament election.
“The risk that France’s parliament may be led by the far-right may focus attention on France’s dismal fiscal situation, which could shake up the euro,” said Jane Foley, head of FX strategy at Rabobank. “We see French politics as another reason to expect that the euro is set ot remain lower for longer.”
Separately, global investors are preparing for the likelihood of another volatile session Wednesday with both the latest monthly print for US consumer prices and Fed decision due.
While policymakers are widely expected to keep borrowing costs on hold, there’s less certainty on officials’ rate projections. A 41% plurality of economists expect policymakers to signal two cuts in their “dot plot,” while an equal number expect the forecasts to show just one or no cuts at all, according to the median estimate in a Bloomberg survey.
“The market is split between somewhere between one and two cuts,” Michael De Pass, head if rates trading at Citadel Securities, said in an interview with Bloomberg TV. “There will be a little bit of a reaction, whatever the outcome.”
Among US premarket share moves, Apple Inc. extended losses after the iPhone maker’s debut of long-awaited artificial intelligence features failed to enthuse traders. General Motors Co. shares rose as much as 1.3% after the automaker authorized a new $6 billion buyback plan.
In the UK, an unexpected rise in the jobless rate boosted the outlook for rate cuts later this year. Traders are fully pricing in the first quarter-point reduction by November and see around a 40% chance of a second decrease the following month.
In a separate development, the country attracted over £104 billion of orders for bonds in a record for gilt sales.
Key events this week:
Some of the main moves in markets:
Stocks
Currencies
Cryptocurrencies
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
With assistance from Allegra Catelli, Naomi Tajitsu and Subrat Patnaik.
This article was generated from an automated news agency feed without modifications to text.
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Published: 11 Jun 2024, 11:55 PM IST