LDN - Business

Shares stable, euro downtrodden as political turmoil saps market mood

[June 17, 2024] By Lawrence White

LONDON (Reuters) - Shares steadied on Monday while the euro remained on the defensive amid political turmoil in Europe, as investors look for direction from a string of central bank meetings in the region this week as well as fresh U.S. economic data.

European stocks recouped a fraction of their losses from last week when French President Emmanuel Macron called a snap election, with banks leading the mini-rally on Monday up 1% against a 0.2% rise in the benchmark STOXX index.

Macron's surprise move came after far right and leftist parties gained ground against his centrist administration, raising investor concerns about a budget crisis and triggering a brutal selloff in French markets.

The euro <EUR=EBS > has become emblematic of this angst, down 0.04% to $1.07025, after falling to its lowest 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 over German bunds widened dramatically amid a flight to safety.

"A French challenge to the region's fiscal arrangements would be problematic and have far-reaching implications," warned analysts at JPMorgan. "At this stage, the situation in the run-up to the first round of voting is still very fluid."

Central banks in Australia, Norway and the UK are all expected to hold rates steady at meetings this week, though the Swiss National Bank (SNB) might ease given the recent strength of the Swiss franc.

Markets have boosted the probability of a cut to 75% as political uncertainty in France drove the euro to a four-month trough at 0.9505 francs on Friday.

FRAGILE CHINA

Asian share markets had earlier fallen as mixed Chinese economic news underlined the country's fragile economic recovery.

While retail sales beat forecasts thanks to a holiday boost, the flurry of data was otherwise largely negative, with Chinese blue chips off 0.2% after industrial output and fixed-asset investment both underwhelmed.

U.S. shares looked set to follow the muted mood, with S&P 500 futures steady, while Nasdaq futures added 0.1% following a run of record finishes.

Analysts at Goldman Sachs have raised their year-end target for the S&P 500 to 5,600, from 5,200 and the current 5,431.

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People walk past screens displaying the Hang Seng stock index and stock prices outside the Exchange Square in Hong Kong, China January 23, 2024. REUTERS/Joyce Zhou/File Photo

"Our 2024 and 2025 earnings estimates remain unchanged but stellar earnings growth by five mega-cap tech stocks have offset the typical pattern of negative revisions to consensus EPS estimates," they wrote in a note.

The main U.S. data of the week will be retail sales for May on Tuesday, where a 0.4% bounce is expected after a 0.3% drop in April, while markets have a holiday on Wednesday.

At least 10 policymakers from the Federal Reserve are due to speak this week and will no doubt address the market's wagers for two rate cuts this year.

While the Fed itself sounded a hawkish note last week, a trio of soft inflation numbers led futures to price in a 76% chance of a cut as early as September and 50 basis points of easing for the year.

The dollar was stable on the yen at 157.45, after briefly spiking above 158.00 on Friday when the BOJ said it would start tapering bond buying a little later than many had wagered on.

Japan's Nikkei slipped 1.9% on Monday, with investors now facing a six-week wait to hear details of the Bank of Japan's next tightening steps.

In commodity markets, gold dipped 0.5% to $2,321 an ounce, unwinding some of last week's 1.7% bounce. [GOL/]

Oil prices held firm after the bumpy economic data from China offset hopes for a boost to demand from the summer driving season in the northern hemisphere.[O/R]

Brent rose 2 cents to $82.64 a barrel as of 0812 GMT, while U.S. crude likewise nudged up to $78.49 per barrel.

(Reporting by Lawrence White in London and Wayne Cole in Sydney; Editing by Sonali Paul, Jamie Freed and Sharon Singleton)

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