Stocks, Euro Rise in Relief After French Election: Markets Wrap

(Bloomberg) — European stocks snapped a four-day losing streak and the euro strengthened as investors took French election results as a sign that the nation may be headed for political gridlock.

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Traders interpreted the first round of voting as an indication that Marine Le Pen’s far-right party faces a tougher-than-expected road to an absolute majority, meaning there’s a smaller chance of policymakers being able to enact extreme policies that would rattle financial markets. The 10-year spread on French-German debt narrowed to a two-week low.

“Markets are quite content there’s no apparent absolute majority,” said Claudia Panseri, chief investment officer for France at UBS Wealth Management. “The most extreme scenarios for the spread have been excluded.”

France’s CAC 40 Index jumped as much as 2.8% before retracing some gains. Banking stocks led the advance in Europe’s Stoxx 600 Index, as French lenders Societe Generale SA, BNP Paribas SA and Credit Agricole SA all surged by more than 5%. The euro climbed to its strongest level since mid June.

Beyond Europe, US equity futures were little changed and Asian stocks posted small gains. Spirit AeroSystems Holdings Inc. rose 6.3% in US premarket trading after Boeing Co. agreed to buy back the supplier in an all-stock deal that values it at $4.7 billion.

France’s second round of voting will be held on July 7. The French political world is now embarking on a period of horse-trading. In constituencies where three people qualified for the runoffs, the third-placed candidate can withdraw to boost the chances of another mainstream party defeating the far right.

“It’s hard to argue that you’ve got a good outcome,” Sebastian Raedler, head of European equity strategy at Bank of America, said on Bloomberg Television. “Maybe you block a majority by the hard right. But in the best-case scenario, you get a hung parliament. That effectively means very little decision making, no ability to deal with a very wide budget deficit, and also the European integration story effectively put on hold.”

Meanwhile, as US investors prepare for the second-quarter reporting season, Goldman Sachs Group Inc. strategists said Corporate America faces the highest earnings bar in almost three years.

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Single-stock analysts predict profits at S&P 500 firms rose 9% on average in the April-June period — the biggest year-over-year increase since the fourth quarter of 2021, Goldman strategists led by David Kostin wrote in a note.

“The magnitude of earnings-per-share beats is likely to diminish as consensus forecasts set a higher bar than in previous quarters,” Kostin said. “We expect the outperformance ‘reward’ for stocks beating estimates will be smaller than average again this quarter.”

In emerging markets, South African assets rallied after President Cyril Ramaphosa announced a new cabinet that includes members of the opposition Democratic Alliance, considered business-friendly by investors.

In commodities, oil rose as traders assessed economic outlook and geopolitical risks in Europe and the Middle East. Iron ore rose amid tentative signs of recovery in China’s steel-intensive property market, and speculation that Beijing could do more to support the sector.

Key events this week:

• US construction spending, ISM Manufacturing, Monday

• ECB President Christine Lagarde speaks, Monday

• Bundesbank President Joachim Nagel speaks, Monday

• RBA issues minutes of June policy meeting, Tuesday

• South Korea CPI, Tuesday

• Eurozone CPI, unemployment, Tuesday

• Fed Chair Jerome Powell speaks, Tuesday

• ECB President Christine Lagarde speaks, Tuesday

• Australia retail sales, Wednesday

• China Caixin services PMI, Wednesday

• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

• Poland rate decision, Wednesday

• US FOMC minutes, ISM Services, factory orders, trade, initial jobless claims, durable goods, Wednesday

• ECB President Christine Lagarde speaks, Wednesday

• New York Fed President John Williams speaks, Wednesday

• Sweden’s Riksbank issues minutes of June meeting, Wednesday

• Australia trade, Thursday

• UK general election, Thursday

• European Union provisional tariffs on China EVs set to be introduced, Thursday

• ECB publishes account of June’s policy meeting, Thursday

• US Independence Day holiday, Thursday

• Thailand CPI, international reserves, Friday

• Eurozone retail sales, Friday

• France trade, industrial production, Friday

• Germany industrial production, Friday

• ECB President Christine Lagarde speaks, Friday

• Canada unemployment, Friday

• US unemployment, nonfarm payrolls, Friday

• New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.4% as of 11:21 a.m. London time

• S&P 500 futures rose 0.1%

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average rose 0.2%

• The MSCI Asia Pacific Index rose 0.2%

• The MSCI Emerging Markets Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.4% to $1.0752

• The Japanese yen fell 0.1% to 161.10 per dollar

• The offshore yuan was little changed at 7.2975 per dollar

• The British pound rose 0.2% to $1.2667

Cryptocurrencies

• Bitcoin rose 1.5% to $62,820.84

• Ether rose 1.6% to $3,472.15

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.41%

• Germany’s 10-year yield advanced seven basis points to 2.57%

• Britain’s 10-year yield advanced five basis points to 4.22%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sagarika Jaisinghani.

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