European Midday Briefing : Stocks, Euro Hit by European Political Upheaval

MARKET WRAPS

Stocks:

European stocks fell on Monday after European elections resulted in strong gains for right-wing Euroskeptic parties, prompting Emmanuel Macron to call a snap election in France.

The main takeaways of the election results are that the centrist majority in the European parliament is holding, and that the biggest impact could be felt at the national level as shown by Macron's move to call a legislative election, Deutsche Bank said.

Investors are also nervous ahead of a Federal Reserve decision on Wednesday after very strong U.S. jobs data on Friday raised the prospect of interest rates being left on hold for a prolonged period.

"Investors in Europe face uncertainty over the global interest rate outlook from central banks like the Fed and European Central Bank, as well as political shifts in the region after the European Parliament elections," IG said.

Stocks to Watch

Allianz has the best track record of delivering on target compared with peers, Berenberg said. The insurer is still the best placed despite the pressure on its position as the most investible compared with AXA, Zurich and Generali, Berenberg said.

AstraZeneca 's oncology and biopharma upgrades move the pharma giant closer to reaching its 2030 revenue goal, Berenberg said, raising its 2030 revenue forecast for the company to $74 billion, which narrows the gap on management's targeted revenue of $80 billion.

BP could become the standard-bearer in Europe's possible new energy order following the continent's centre-right political tilt, Citi said.

U.S. Markets:

Stock futures slipped as investors looked ahead to a decision on interest rates from the Fed this week and the latest data on inflation.

Treasury yields were heading higher again, after surging in response to Friday's jobs report.

Stocks to Watch

Nvidia will start trading on a split-adjusted basis. The 10-for-1 stock split took effect Friday after the close of trading. Shares were down 0.5% premarket.

Southwest Airlines rose 5.6% to $29.30 after WSJ reported activist Elliott Investment Management has built a stake of nearly $2 billion in the carrier and plans to push for changes aimed at reversing the airline's underperformance.

Forex:

The euro slid to a one-month low against the dollar after European elections sparked concerns that European unification "appears gradually more fragile," Commerzbank said.

"The euro suffers when the question arises as to whether a politically created transnational currency can survive in the long term if the political framework conditions change," it said.

"So far, the rampant euro skepticism has not caused any significant damage to the euro. However, the risk that this will not remain the case increased yesterday. Only marginally, but to a visible extent."

The euro already weakened on Friday as the dollar firmed on the U.S. jobs data.

"I believe that the impact of the political shenanigans will remain short-lived but a hawkish Fed outcome this Wednesday could prove to be harder to shake off," Swissquote said.

Bonds:

French government bonds underperformed German Bunds as Macron dissolved the National Assembly and called a snap election.

Natixis said the next few weeks could see some nervousness on the French debt market as France is heading into early legislative elections on June 30 and July 7.

Energy:

Oil prices edged higher despite a stronger dollar, but market sentiment remains broadly bearish, ING said.

After the U.S. jobs data, all eyes are now on the central bank's two-day policy meeting starting on Tuesday and the May CPI inflation data release on Wednesday.

Traders will also be watching for monthly oil-market reports from OPEC and the International Energy Agency this week for insights on the supply and demand outlook.

Goldman Sachs said Brent crude is expected to reach $86 a barrel in the third quarter of the year on healthy fuel demand over the summer.

The bank expects solid demand for transportation and cooling to push oil markets into a deficit of 1.3 million barrels a day, sending the benchmark price higher from current levels of around $79 a barrel.

Metals:

Gold futures fell to their lowest level since early April on the U.S. jobs report and on news that China halted buying gold for reserves in May, ING said.

The Chinese central bank bought just 60,000 ounces in April, down from 160,000 ounce in March, ING said.

EMEA HEADLINES

European Stocks and Euro Fall Amid Political Instability

European stock markets and the euro fell early Monday following the advance of far-right parties in European elections and major losses for President Emmanuel Macron's alliance that prompted him to call a snap election.

In early trade, the euro slipped 0.5% against the dollar to a one-month low of $1.0747, according to Factset, while France's bluechip CAC 40 index fell 2%. The biggest fallers were banks, with Societe Generale, BNP Paribas and Credit Agricole all down more than 4%. The pan-European Stoxx 600 fell 0.8% in opening trade.

France's Macron Dissolves National Assembly After Le Pen Victory in European Vote

PARIS-French President Emmanuel Macron said he was dissolving France's National Assembly in a surprise move that scrambled the country's political firmament Sunday after Marine Le Pen's far-right party trounced his forces in European elections.

Macron said the country will hold new elections for the lower house of the French parliament on June 30 and July 7, a high-stakes maneuver that stunned a nation already reeling from projections based on early ballot counts for Sunday's elections for the European Parliament. The projections showed National Rally garnering around 31% of the vote, the highest score ever for the far-right party in European elections, and twice the support for Macron's Renaissance Party.

Iran Approves Six Candidates to Run for President. All but One Are Conservatives.

Iranian authorities approved a list of six candidates-almost all conservatives-to run in a presidential contest on June 28 following the death of President Ebrahim Raisi in a helicopter crash last month, setting off what will likely be a carefully managed campaign as the country's clerical leaders face mounting domestic and external stress points.

At home, growing numbers of Iranians have chosen not to vote at all in recent elections to mark their dissatisfaction with Iran's strict Islamic rules and a faltering economy. Internationally, Tehran is facing growing pressure over advances in its nuclear program and its support for regional proxies across the Middle East as the war in Gaza drags on.

GLOBAL NEWS

Americans Really, Really Hate Inflation-and That's a Big Problem for the Fed

Inflation is still higher than the 2% the Federal Reserve is aiming for, and maybe that is OK. That is, if we could just put aside the fact that we hate inflation so much.

Fed policymakers are poised on Wednesday to leave their benchmark federal-funds rate steady at the highest level in more than two decades, and inflation is the biggest reason. Their preferred measure of consumer prices, from the Commerce Department, was up 2.7% from a year earlier in April. That marks an improvement from April 2023, when it was up 4.4%, but still doesn't show the kind of progress investors were hoping for at the beginning of the year, when they were betting the Fed would be cutting by now.

Stock market faces midweek double whammy with Fed decision following CPI inflation reading

An earlier version of this article cited the incorrect date for the release of May CPI and the Federal Reserve policy decision. Wednesday is June 12. The article has been corrected.

Cancel your Wednesday appointments.

Fed won't move interest rates this week, but meeting will still be a feast for economists

The Federal Reserve is widely expected keep its benchmark interest rate steady at the end of their two-days of deliberations on Wednesday, but economists will be watching closely for any clues on the timing of the first rate cut in four years.

A move this week is off the table because Fed officials have stressed the need to be patient as the decline in inflation has shown a lack of progress over the first quarter of the year, said Ian Pollick, head of fixed income strategy at CIBC Capital Markets.

U.S. to Offer Landmark Defense Treaty to Saudi Arabia in Effort to Spur Israel Normalization Deal

The Biden administration is close to finalizing a treaty with Saudi Arabia that would commit the U.S. to help defend the Gulf nation as part of a long-shot deal to encourage diplomatic ties between Riyadh and Israel, U.S. and Saudi officials said.

But the success of the diplomatic effort hinges on Israel's commitment to a separate Palestinian state, and more immediately an end to the war in Gaza, an unlikely proposition amid months of fruitless cease-fire talks and an Israeli weekend raid to retrieve hostages from the heart of the territory.

Write to [e-mail]

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

06-10-24 0602ET