SINGAPORE, 1st July, 2024 (WAM) -- Uncertainty over the U.S. rates outlook kept Asian shares steady on Monday, while the euro rose after the first-round voting in France's shock snap election was won by the far-right, albeit with a smaller share than some polls had projected.
Reuters reported that the shock vote has unsettled markets as the far-right, as well as the left-wing alliance that came second on Sunday, have pledged big spending increases at a time when France's high budget deficit has prompted the EU to recommend disciplinary steps.
On Monday, the euro was 0.41 percent higher, while European stock futures rose 1.4 percent and French OAT bond futures gained 0.15 percent as investors digested the better than feared results, although uncertainty remained.
Subdued start for Asia-Pacific shares
In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan was 0.04 percent lower, in a subdued start to the second half of the year having risen 7 percent so far in 2024.
China stocks were mixed, with blue-stocks down 0.19 percent and the Shanghai Composite index up 0.31 percent after a mixed set of data.
Factory activity among smaller Chinese manufacturers grew at the fastest pace since 2021 thanks to overseas orders, while weak domestic demand and trade frictions had led to another industrial sector contraction.
Spotlight on U.S. rate cuts
On the macro side, the spotlight remains on if and when the Federal Reserve will start cutting rates in the wake of data on Friday showing U.S. monthly inflation was unchanged in May.
In the 12 months through May, the personal consumption expenditures (PCE) index increased 2.6 percent after advancing 2.7 percent in April. Last month's inflation readings were in line with economists' expectations but they remain above the Fed's 2 percent target for inflation.
Still, markets are clinging to expectations of at least two rate cuts from the Fed this year with a cut in September pegged in at 63 percent probability, CME FedWatch tool showed.
Investor focus this week will be on the minutes of the Fed's June meeting that will offer more clues on the central bank's thinking before the spotlight switches to payrolls data on Friday. The Feb in June projected just one rate cut in 2024.
Forex, commodities
Among currencies, the yen traded slightly weaker at 161.06 per dollar after skidding to 161.27 on Friday, its weakest level since late 1986, keeping traders on edge for signs of intervention from the Japanese authorities.
A quarterly central bank survey showed on Monday the business mood in Japan's service sector soured in June, while a rare unscheduled downgrade to the country's GDP data also showed the economy shrank more than reported in the first quarter.
The euro touched a more than two-week high of US$1.076175 in early Asian hours, pushing the dollar index, which measures the U.S. unit against six rivals, a touch lower at 105.61.
In commodities, oil prices edged higher, with Brent futures 0.39 percent higher at US$85.33 per barrel and U.S. West Texas Intermediate crude futures up 0.39 percent at US$81.86.