As Wall Street stocks open the week hitting new records, investors brace for another earnings season and Federal Reserve testimony. Meanwhile, in a surprising turn of events in France’s election, the country’s left-wing has thwarted Marine Le Pen’s far-right movement, resulting in a hung parliament.
Early trading sees U.S. Treasuries calm, with the dollar slightly weaker following Friday’s June employment report, which indicated a cooling labor market and reinforced expectations of two Fed rate cuts this year. Federal Reserve Chair Jerome Powell faces congressional questioning on Tuesday and Wednesday, continuing from his recent appearances in Portugal.
Attention in the stock markets is expected to shift towards updates on second-quarter corporate earnings, starting with major U.S. banks on Friday.
Similar to the focus on Britain’s election outcome on Friday, European markets initially responded to political developments, particularly the unexpected results of Sunday’s second-round French assembly elections.
The far-right failed to secure a majority, with tactical voting pushing them into third place behind a left-wing alliance and President Emmanuel Macron’s centrist coalition. Markets reacted positively to the absence of a dominant parliamentary force, potentially easing concerns about fiscal policies from both left and right.
While questions remain about achieving next year’s budget amid pressure from the European Union to adhere to deficit rules, the assembly’s makeup does not significantly differ from before last month’s snap election call.
French stocks rose nearly 1%, while government bond yields eased over 5 basis points. The risk premium over German bonds also narrowed by 2 basis points to 66 basis points.
The euro maintained gains, reaching three-week highs against a softer dollar.
In the UK, sterling strengthened following the Labour Party’s landslide victory on Thursday, giving it a parliamentary majority of more than 170 seats. Finance Minister Rachel Reeves outlined plans on Monday to accelerate infrastructure projects and attract private investment as part of a new “national mission” to drive economic growth. She also announced the reinstatement of mandatory house-building targets during a meeting with business leaders.
