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Global equity/currency market update: Asian Stocks Drop Amid Fed Rate Cut Doubts and French Political Uncertainty

10 Jun 2024 8:40 am
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Mumbai, 10 Jun (Commoditiescontrol): Asian stocks fell on Monday as investors scaled back expectations for Federal Reserve rate cuts this year due to a resilient U.S. labor market, while a snap election call in France added to political concerns, pressuring the euro.

Trading was light across Asia with markets in Australia, China, Hong Kong, and Taiwan closed for public holidays. Nonetheless, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.46%. U.S. futures also eased slightly, with S&P 500 and Nasdaq futures both down about 0.03%. The dollar gained strength.

The global risk rally stalled after Friday's nonfarm payrolls report, which revealed the U.S. economy created more jobs than anticipated in May, with annual wage growth also reaccelerating. This reinforced the strength of the labor market and led traders to reduce the anticipated rate cuts from the Federal Reserve, with futures now showing about 36 basis points of cuts priced in, down from 50 basis points last week. The likelihood of an easing cycle beginning in September has also decreased.

These developments come ahead of the Fed's policy decision on Wednesday, with U.S. inflation data for May due just before. U.S. Treasury yields rose on Monday, reflecting expectations of higher interest rates for a longer period. The two-year yield and benchmark 10-year yield each increased by about 1 basis point to 4.8826% and 4.4414%, respectively.

In currency markets, the yen fell 0.1% to 156.87 per dollar, and the dollar index firmed to 105.10. Japan's Nikkei benefited from the weaker yen, rising 0.42%. The Bank of Japan will hold its two-day monetary policy meeting this week and may provide new guidance on its bond purchase program.

In Europe, French President Emmanuel Macron's call for snap legislative elections later this month, following a significant defeat by Marine Le Pen's far-right party in the European Union elections, has created political upheaval. This decision offers the far-right a chance at political power, potentially undermining Macron's presidency three years before its end. The euro fell to a one-month low, down 0.25% at $1.07735, reflecting the uncertainty.

European futures also declined, with EUROSTOXX 50 futures down 0.38% and FTSE futures sliding 0.7%. French bond futures dropped 0.2%.

In commodities, oil prices reversed earlier losses due to the stronger dollar. Brent crude futures rose 0.13% to $79.72 per barrel, and U.S. West Texas Intermediate crude futures increased 0.16% to $75.65 per barrel. Spot gold was up 0.18% at $2,296.65 an ounce.

(By Commoditiescontrol Bureau: 09820130172)


       
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