Aurelia Butler

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SINGAPORE (Reuters) – The euro fell on Monday as the French President Emmanuel Macron called a shock election after being trounced in the European Union vote by the far-right, while the dollar was steady ahead of the Federal Reserve meeting later in the week. The euro fell to $1.0764, its lowest since May 9, in early trading in Asia. It was last down 0.24% at $1.0776 as investors weighed the implications of renewed political uncertainty in the euro zone’s second-biggest economy in a key election year.Eurosceptic nationalists made the biggest gains in European Parliament elections in the Sunday vote, an aggregated exit poll showed, prompting Macron to take a risky gamble to try to reestablish his authority.”The prospects of a far right victory in France’s snap elections may keep the euro under pressure in the near term,” said Mansoor Mohi-Uddin, chief economist at Bank Of Singapore.”But the exchange rate is still more likely to be influenced by this week’s U.S. inflation data and FOMC meeting.”The European Central Bank cut rates last week in a well-telegraphed move, but offered few hints about the outlook for monetary policy given that inflation is still above target. The dollar index, which measures the U.S. currency against six rivals, was at 105.09, the highest since May 30, after rising 0.8% on Friday following data that showed the world’s largest economy created a lot more jobs than expected in May.U.S. nonfarm payrolls expanded by 272,000 jobs last month, data showed, while economists polled by Reuters had forecast payrolls advancing by 185,000.Ryan Brandham, head of global capital markets for North America at Validus Risk Management, said recently the U.S. labour market data has been showing some signs of softening, supporting discussions of rate cuts in the second half of 2024. “But this result will likely take the steam out of that conversation. The Fed has shown patience in waiting for the confidence that inflation will fully return to target before signalling rate cuts, and that caution seems warranted.”The jobs data led traders to once again shift their expectations of when the Fed will cut rates and by how much. Markets are now pricing in 36 basis points of cuts this year compared to nearly 50 bps – or at least two cuts – before the jobs data.The chances of a rate cut in September are now at roughly 50%, from around 70% late on Thursday.The Fed is not expected to make any change at its policy meeting this week but the focus will be on the comments from Fed Chair Jerome Powell and changes to economic projections from the policymakers. U.S. inflation data is also due on Wednesday.”We suspect that the median dot will fall from three cuts to less than two. A hawkish hold?,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. The Bank of Japan is due to hold its two-day monetary policy meeting this week, with the central bank widely expected to maintain short-term interest rates in a 0-0.1% range. The policymakers are brainstorming ways to slow its bond buying and may offer fresh guidance as early as this week, sources familiar with its thinking told Reuters, in what would be a first step to reducing its almost $5 trillion balance sheet.The Japanese yen weakened to 156.95 in early trading on Monday. The currency remains close to the 34-year trough beyond 160 per dollar reached at the end of April, which prompted Japanese officials to spend some 9.8 trillion yen ($62.46 billion) intervening in the currency market to support it.Sterling was flat at $1.2723 having touched $1.2700, its lowest in a week earlier in the session. ($1 = 156.9000 yen) More

TOKYO (Reuters) – Japan’s government will highlight the need to work closely with the central bank and guide policy “flexibly” in the wake of soft consumption and uncertainty over the inflation outlook, a draft of its annual economic blueprint seen by Reuters showed.”Monetary policy has entered a new stage,” which required the government and the Bank of Japan to “continue working closely and guide policy flexibly in accordance to economic and price developments,” according to the draft.By keeping inflation stably around the BOJ’s 2% target, policymakers will seek to create an environment where wages rise faster than inflation on a sustained basis, the draft said.The government draft will be presented to ruling party lawmakers for deliberations, before being finalised at a Cabinet meeting on June 21.In the draft, the government said consumption “lacked momentum” with the outlook on prices unclear due in part to the effect of recent yen declines.It also flagged lingering overseas risks such as the fallout from monetary tightening by central banks across the globe, and worries about soft Chinese growth.Japan is facing a “critical moment” in shifting away from a deflation-prone economy that prioritised cost cuts, towards one where higher productivity allows more companies to keep hiking prices and wages, the draft said.The government will submit legislation to next year’s parliament to facilitate smoother pass-through of costs in industries like construction, transportation and agriculture, the draft said.A weak yen and subsequent rise in households’ living costs have hurt Prime Minister Fumio Kishida’s approval ratings, prodding the administration to highlight its efforts to generate higher wage growth.The BOJ, for its part, ended eight years of negative interest rates in March, and has signalled that it would hike rates further if it becomes more convinced that inflation will durably hit 2%. More

In a report that will be studied by the Bank of England as it weighs up when to start cutting interest rates, the Recruitment and Employment Confederation said permanent hiring fell by the smallest amount in 14 months.Billings for temporary staff dropped by the least since January.”The jobs market looks like it’s on its way back, with clear improvements over last month on most key measures,” REC Chief Executive Neil Carberry said.The REC survey has generally painted a weaker picture of the labour market than broader official data, which showed annual wage growth of 6% in the first quarter of 2024.Britain’s July 4 national election and the likelihood of interest rate cuts by the BoE later this year were likely to remove the hesitancy of employers about hiring, Carberry said.”These numbers suggest that caution may be starting to abate,” he said.REC said pay rates for permanent staff rose at a pace that was only slightly slower than April’s four-month high. Vacancies fell at the slowest pace in a seven-month downturn.In a possible relief for the BoE, the availability of staff grew by the most since December 2020, boosted by a mix of redundancies, higher unemployment and the reduction in demand for staff.The BoE is watching the labour market closely as it assesses when inflation pressure in the economy has abated sufficiently for it to cut borrowing costs for the first time since the start of the coronavirus pandemic more than four years ago. More

LONDON (Reuters) – The euro fell in early Asia trade on Monday, a sign of the unease likely to beset Europe as French President Emmanuel Macron called a shock legislative election after being trounced in the European Union vote by the far-right.The euro slipped 0.3% to $1.0764, touching its lowest level in around a month, according to LSEG data. The euro also edged lower versus the British pound, dropping 0.35% to 84.60 pence. It touched its lowest levels since August 2022, having fallen to that area in late May.Eurosceptic nationalists made the biggest gains in European Parliament elections in the Sunday vote while the Greens and liberals lost ground, an aggregated exit poll showed. In Italy, Prime Minister Giorgia Meloni’s arch-conservative Brothers of Italy group won the most votes, exit polls showed, confirming its status as the nation’s most popular party. Macron’s surprise decision represents a major roll of the dice on his political future, three years before his presidency ends. If Marine Le Pen’s far-right National Rally (RN) party wins a parliamentary majority, Macron would be left without a say in domestic affairs.”That is probably somewhat bad news for markets,” said Berenberg chief economist Holger Schmieding.”It introduces an unexpected element of uncertainty.”Renewed political uncertainty in the euro zone’s second-biggest economy jolts financial markets in a key election year and at a time of heightened geopolitical risks. Britain holds a general election on July 4 and crucial U.S. elections take place in November. WAKE-UP CALL?While the euro and euro area assets more broadly have been largely cushioned by diminished euro-scepticism compared with elections in the 2010s and early 2020s, the surprise news from France and wins for eurosceptic parties in the EU election could be a wake-up call. In focus when broader European markets open later on Monday will likely be Italy’s 10-year government bond yield gap over benchmark Germany – often a good barometer of risk appetite in the region. The spread was at around 133 basis points late on Friday, comfortably below peaks seen last year above 200 bps.Europe’s broad STOXX 600 share index, which has been trading near record highs, could also be vulnerable.”Obviously, the snap election is a new source of uncertainty, which should have some negative impact on economic and market confidence, at least in France,” said Jan von Gerich, chief market analyst at Nordea.But he noted that EU election results do not always translate directly into a domestic parliamentary election result, due to a different election system and typically more protest voting in European elections.Peter Cardillo, chief market economist at Spartan Capital Securities in New York, said it would take a huge surge to the far right for the euro to weaken substantially.The euro is down roughly 2.5% against the dollar so far this year, and its path has largely been driven by the relative outlooks for interest rate cuts in the euro area and United States. The European Central Bank last week delivered its first rate cut in five years.In France, where concern about the country’s high debt levels have grown this year, the implications of renewed political uncertainty for the economy could also be in focus.Standard & Poor’s last month cut its rating on France’s sovereign debt, delivering a painful rebuke of the government’s handling of the strained budget days before the EU election.     More

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(Reuters) – A look at the day ahead in Asian markets.Asian markets on Monday get their first chance to react to the global market fallout from Friday’s U.S. employment report, which saw the biggest one-day rise in Treasury yields and the dollar in two months.Traders also pared back Fed rate cut expectations – the probability of a pre-election rate cut is now no more than 50-50, and two full rate cuts are no longer priced in for this year.This counters some of the dovish momentum that had been building earlier last week when the Bank of Canada and European Central Bank cut rates, and the dollar and Treasury yields touched two-month lows. Indeed, the S&P 500, Nasdaq, and the MSCI World index all hit record highs last week before Friday’s reversal, and Asian stocks still managed to rise nearly 3% for their fifth weekly rise out of the last seven.But rising U.S. bond yields and an appreciating dollar does not bode well for investors’ appetite for risk, so Friday’s market moves could put Asian assets on the defensive at the open on Monday. Investors and traders in Asia may already be inclined to reduce risk exposure ahead of two major monetary policy decisions this week from the Federal Reserve and Bank of Japan.Sources familiar with the BOJ’s thinking say policymakers are brainstorming ways to slow its bond buying and may offer fresh guidance this week, in what would be a first key step to reducing its almost $5 trillion balance sheet.While details are not finalised, the central bank could trim monthly purchases or clarify plans to proceed with a slow but steady taper with a focus on preventing abrupt yield spikes, the four sources said.Japanese trade and current account figures for April will be released on Monday, as will the final estimate of first-quarter GDP. A Reuters poll suggests there will be no change to the quarter-on-quarter contraction of 0.5%, but the annualised print will be nudged up to -1.9 from -2.0% on the back of stronger capex.Industrial production figures from Malaysia and Indonesian consumer confidence complete a light economic calendar on Monday. Meanwhile, in China-related news, U.S. officials expect G7 countries at this week’s summit in Italy to send a tough new warning to smaller Chinese banks to stop assisting Russia in evading Western sanctions, according to two people familiar with the matter.Media reports also suggest Volvo (OTC:VLVLY) has started to shift production of Chinese-made electric vehicles to Belgium in anticipation that the European Union will crack down on Beijing-subsidised imports.And Turkey said on Saturday it will impose a 40% additional tariff on imports of vehicles from China.Here are key developments that could provide more direction to markets on Monday:- Japan GDP (Q1, final estimate)- Malaysia industrial production (April)- Indonesia consumer confidence (May) More