Wayne Cole
SYDNEY (Reuters) – Asian shares traded narrowly on Tuesday as investors pondered fresh political uncertainty in European markets after a right-wing election victory and a snap poll in France revived concerns about the bloc’s cohesion.
Changes were modest, with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 0.4% on weak trading and Chinese blue chips falling 0.7%.
On the other hand, South Korean stocks rose 0.3% and South Korean stocks rose 0.5%.
EUROSTOXX 50 futures also rose 0.2%, stabilizing from Monday’s fall, although they were up 0.1%.
The euro, French shares and government debt were rocked as investors weighed whether the right could repeat its electoral success in France and what influence far-right parties could have on the new EU leader.
Bond yields rose across Europe, with the gap between French and German debt widening markedly after a poll showed the far-right National Rally could win a snap election, albeit without a clear majority.
Elsewhere, markets reacted mutedly to Apple’s (NASDAQ:) long-awaited artificial intelligence strategy, which integrates “Apple Intelligence” technology into its suite of applications. Shares of the iPhone maker fell 0.3% in after-hours trading, having fallen 1.9% in regular hours.
Nasdaq and Nasdaq futures fell 0.1% in Asian trading after rising Monday.
For now, the market has proven remarkably resilient to the jump in US bond yields that followed Friday’s jobs report and lower expectations for a Federal Reserve rate cut.
“We see the prospects for rate easing diminishing this year and now expect the Fed’s first rate cut to occur only in November,” JPMorgan analysts said.
“The stock appears to be shrugging off a host of risks, including politics, geopolitics, narrow market concentrations and the rise of meme stocks and cryptocurrency trading, which could signal a churning,” they added. “In this way, we maintain a defensive bias in our model portfolio.”
ONE CUT OR TWO?
Futures suggest the Fed will ease policy this year by 37 basis points, down from 50 bps. before the employment report.
The Fed is thought likely to show stability at its policy meeting on Wednesday, focusing on whether it will keep three rate cuts in its “spot” forecasts for this year.
“We expect the points to show two cuts in 2024, four cuts in 2025, three cuts in 2026 and a small increase in the long-term or neutral rate,” Goldman Sachs analysts said in a note.
“We think management would prefer to see the benchmark cut to two numbers to maintain flexibility, but a one-cut benchmark represents a possible risk, especially if core CPI rises unexpectedly on Wednesday.”
The consumer price index (CPI) is forecast to rise 0.1% in May, but the core index is expected to rise 0.3%.
In foreign exchange markets, the euro stabilized at $1.0766 after hitting a one-month low of $1.0733 the day before. It has lost about 1.1% over the past two sessions, hurt by US jobs reports and political uncertainty.
The dollar was broadly supported at 157.17 yen, just below its May high of 157.715.
The yen’s weakness is one reason the Bank of Japan (BoJ) could decide to cut bond purchases at its policy meeting on Friday as a step toward another rate hike.
Gold was trading just above a one-month low of $2,306 an ounce after being hit by lower market prices due to US rate cuts. [GOL/]
Oil prices extended gains of 3% on Monday as various investment banks forecast strong summer fuel demand and potential purchases of oil supplies.
Markets are also awaiting monthly oil supply and demand data from the US Energy Information Administration and OPEC on Tuesday and the International Energy Agency on Wednesday. [O/R]
U.S. crude fell 4 cents to $81.59 a barrel, while U.S. crude was unchanged at $77.74 a barrel.