Asian stocks fell on Monday as concerns over France’s political crisis weighed on global markets, while traders awaited policy decisions from major central banks scheduled for this week.
The MSCI’s Asia Pacific Index experienced its biggest drop in two weeks, with Japanese stocks leading the decline. However, Hong Kong shares rebounded, driven by gains in financial and tech firms, following data that showed Chinese retail spending surpassing expectations. Meanwhile, benchmark 10-year Treasuries slipped and US equity futures remained relatively unchanged. Markets in Singapore, India, and Indonesia were closed for holidays.
The flight to safe-haven assets intensified as risk sentiment deteriorated, with a global stock gauge experiencing its largest decline in two weeks due to France’s snap parliamentary election, which renewed concerns about political volatility worldwide. The US dollar edged higher, while the euro stabilized after experiencing its biggest drop in two months last week. French bond futures also declined.
Bob Savage, head of markets strategy and insights at BNY Mellon, commented on the situation, stating, “The investor uncertainty over ballot boxes shows up again – with the last two weeks highlighting the risks of volatility despite expectations for governmental changes – start with South Africa, continue to Mexico and now throw in Europe with the surprise French election.”
In China, the People’s Bank of China (PBOC) kept its one-year MLF interest rate unchanged at 2.5%. Economic data was mixed, with May retail sales surpassing analysts’ expectations, but factory output coming in weaker than anticipated. Chinese property developers’ shares fell after home prices declined at a faster pace in May, despite the country’s efforts to support the property market.
The political risks in France escalated as a coalition of left-wing parties presented a manifesto to reverse most of President Emmanuel Macron’s economic reforms, potentially putting the country at odds with the EU over fiscal policy. Far-right leader Marine Le Pen stated that she would not seek to remove Macron if she wins the snap parliamentary election, in an attempt to appeal to moderates and investors.
Looking ahead, policymakers from the UK to Australia are expected to signal this week that they are not yet convinced about disinflation to start lowering borrowing costs, following the Federal Reserve’s decision to reduce projections for US monetary easing this year. Emerging market policymakers, including those in Indonesia and Brazil, are also likely to resist rate cut expectations.
In the US, stocks struggled to gain momentum on Friday after a consumer sentiment gauge dropped to a seven-month low. The S&P 500 closed slightly lower, with industrial shares leading the decline. Tech stocks outperformed, with Adobe Inc. rising 15% on a strong outlook. In Europe, the Stoxx Europe 600 slid 1%, while France’s CAC 40 Index extended losses to over 6% last week, the most since March 2022.
This week, traders will be monitoring inflation readings in Europe and the UK to refine their bets on the global monetary policy outlook. Additionally, a number of Fed officials, including Dallas Fed President Lorie Logan, Chicago Fed President Austan Goolsbee, and Fed Governor Adriana Kugler, are scheduled to speak.
In the commodities market, oil prices retreated after posting their biggest weekly gain since early April.
Key events to watch this week include various economic data releases and central bank decisions across different countries, which could further impact global markets.
