- European bourses are entirely in the green, paring initial losses as markets digest the fallout from the French second-round parliamentary election
- French second-round election results pointed to a hung parliament in which the left-wing New Popular Front surprisingly won the most seats followed by Macron's centrists and with the far-right National Rally in third place
- DXY is incrementally softer & EUR scales back initial French-induced losses
- Bonds are incrementally softer, with USTs underperforming; OATs initially gapped lower but now towards session highs
- Crude is subdued and at lows, XAU slips and base metals are flat/mixed, recovering overnight losses
- Looking ahead, Comments from BoE’s Haskel
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FRENCH ELECTION
- France's left-wing New Popular Front alliance surprisingly won the most seats (182 seats) in the second round of the French parliamentary election but fell short of an absolute majority, while President Macron’s centrist bloc won the second-most number of seats (163 seats) followed by the far-right National Rally in third place (143 seats) in a shock win for the left-wing coalition with France set for a hung parliament.
- French Presidency said Macron will respect the choice of the French people and will wait for the full picture to emerge in parliament before taking the necessary next decisions, while it added that Macron is currently analysing the latest parliament election results.
- French PM Attal said no absolute majority can be formed by extreme parties after the parliamentary elections and his political camp has no majority, while he will offer his resignation to President Macron.
- French Unbowed leader Melenchon said the election score is the result of a magnificent mobilisation effort and the far-right is from a majority, while he added Macron’s defeat is clearly confirmed and PM Attal must go, according to Reuters.
- French far-right National Rally’s Le Pen said she sees the seed of tomorrow’s victory in today’s results and their victory has merely been delayed, while she added that French President Macron’s situation is untenable, according to Reuters.
- French Socialist leader Faure says NFP will select a PM from within the alliance within the week, via AFP.
- French PM Attal submitted his resignation to President Macron at 10:15BST (as expected).
- Click for the newsquawk analysis piece on the election
EUROPEAN TRADE
EQUITIES
- European bourses, Stoxx 600 (+0.6%), began the session on a weaker footing with initial sentiment hampered by the French second round parliamentary elections, which resulted in a hung parliament. However, optimism soon lifted and benchmarks soared to session highs, CAC 40 +0.5%, potentially stemming from comments by French Socialist leader Faure who said the NFP will select a PM from within the alliance within the week, via AFP.
- European sectors hold a strong positive bias vs an initially negative bias. Insurance takes the top spot, with JPM noting that given the recent sell-off within the sector and specifically Axa (+1.5%), there is a buying opportunity. Elsewhere, Energy and Basic Resources both lag amid weakness in the crude and metals complex, respectively.
- US Equity Futures (ES U/C, NQ +0.1%, RTY +0.2%) are mixed and trading incrementally on either side of the unchanged mark. Sentiment has improved in recent trade, given the strength in European equities since the cash open.
- Click for the sessions European pre-market equity newsflow
- Click for the additional news
- Click for a detailed summary
FX
- DXY is marginally lower and back on a 104 handle in what has been a relatively quiet start to the week. The index is managing to hold above last week's NFP-induced 104.82 low with Thursday's CPI report set to be the next big test for the greenback.
- EUR has been able to shrug off initial worries surrounding the fallout of the French election which showed a strong showing for the left and uncertainty stemming from a hung Parliament. EUR/USD gapped lower at the open to 1.08 before printing a subsequent session high at 1.0842.
- GBP is steady vs the Dollar with fresh fundamentals lacking, though with traders mindful of speak from BoE's Haskel later on. 1.2821 is the high watermark for Cable thus far, with not much in the way of resistance until the 12th June high at 1.2860.
- JPY is a touch softer vs. the USD but near levels traded on Friday in the wake of the NFP report. USD/JPY made an incremental new low overnight at 160.27 before the USD clawed back some losses vs. peers.
- Antipodeans are trivially softer vs the Dollar; AUD advanced as high as 0.6761 overnight before scaling back gains and slipping back below its 50DMA at 0.6742.
- PBoC set USD/CNY mid-point at 7.1286 vs exp. 7.2640 (prev. 7.1289)
- CNB Minutes (June): Zamrazilova & Kubelkova dissented and voted for a 25bp move. At upcoming meetings, board should discuss the option of slowing the decline in rates or stabilising them for some time. Frait said the CZK may be undervalued.
- Click for a detailed summary
- Click for NY OpEx Details
FIXED INCOME
- OATs gapped lower by 39 ticks on the open before then slipping further to a 123.36 base. Pressure in the wake of the surprise election outcome where NFP won. However, OATs have since picked up and are near unchanged on the session up to a 123.95 peak, potentially a function of the market cheering a removal of the right-wing risk.
- USTs are slightly underperforming Bunds/Gilts but only modestly so. US enters a particularly busy week with dual-testimony from Powell and then CPI headlining. Treasuries are pressured by around 7 ticks to a 110-11+ base, but remains in relative proximity to Friday's 110-20 peak.
- Bunds are softer and holding just below the 131.00 mark in a 130.77-131.13 band. Data saw EZ Sentix for July come in at -7.3 (exp. 0.0, prev. 0.3), though sparked no real reaction.
- Click for a detailed summary
COMMODITIES
- Crude is softer intraday despite the rebound in risk across stocks, amid positive vibes regarding the Israel-Hamas ceasefire proposal. Brent September slipped from a USD 86.92/bbl peak to a USD 85.95/bbl trough.
- Precious metals are lower across the board and giving back some recent gains as the Dollar attempts a recovery and the DXY tries to mount 105.00 once again.
- Base metals are flat/mixed, with prices recovering from the overnight weakness as Chinese property stocks slumped.
- Hurricane Beryl makes landfall in Texas after hitting Mexico
- NHC said Beryl is forecast to strengthen to a hurricane again before landfall and a storm surge warning was extended along the Texas coast. NHC also announced that a hurricane warning is in effect for the Texas coast from Baffin Bay northward to San Luis Pass and Galveston Island, as well as for the south of Baffin Bay to the mouth of the Rio Grande River, according to Reuters. Furthermore, the NHC later confirmed that Beryl became a hurricane again.
- US Coast Guard shut the Port of Houston ahead of approaching Beryl, while ports of Texas, Freeport & Galveston were also shut by the Coast Guard, according to Reuters.
- Citgo began cutting production at its Corpus Christi, Texas refinery (165k bpd) ahead of Beryl but plans to keep the refinery running at minimum rates during the storm, according to sources cited by Reuters. It was later reported that the Port of Corpus Christi announced the port was closed due to Beryl.
- A fire broke out at a gas pipeline in Crimea due to an accident although there were no casualties, according to Russia-installed officials.
- Click for a detailed summary
NOTABLE DATA RECAP
- German Trade Balance, EUR, SA (May) 24.9B vs. Exp. 21.1B (Prev. 22.1B)
- EU Sentix Index (Jul) -7.3 vs. Exp. 0.0 (Prev. 0.3)
NOTABLE EUROPEAN HEADLINES
- German Economy Minister Habeck says the debt brake could only be held so far because defence spending goals were not reached; finance conditions do not fit to the security situation in Germany
- Maersk (MAERSKB DC) says extreme weather conditions are forecasted along the South African coastline for the next few days, particularly between Cape Town & Port Elizabeth. Weather will impact vessel movement and operation.
NOTABLE US HEADLINES
- US President Biden said he is convinced he is the most qualified person to beat Donald Trump and has done ten major events since the debate, while he pointed to his successes when asked if he was the same man as he was when he took office three years ago. Biden also stated he is still in good shape and that no one has said he needs neurological and cognitive tests.
- US Democrat Rep. Schiff said either Biden has to win overwhelmingly or he had to pass the torch and that Kamala Harris could win overwhelmingly but Biden needs to make a decision, according to Reuters.
- Microsoft (MSFT) orders China employees to only use iPhones (AAPL) for work from September, cutting off Android devices from the workplace, according to Bloomberg
GEOPOLITICS
MIDDLE EAST
- Israeli PM Netanyahu said any Gaza deal must allow Israel to continue fighting until all war objectives are met and the deal must not allow weapon smuggling to Hamas via the Gaza-Egypt border. Netanyahu added that thousands of armed militants cannot return to northern Gaza under the deal and that the proposal to which Israel agreed allows the return of hostages without compromising war objectives, according to Reuters.
- A revised proposal on a Hamas-Israel deal stated talks on the release of Israeli hostages including soldiers will start in a 16-day period after the first phase and an agreement on a hostage release deal is to be concluded before the end of the fifth week of the second phase, according to a senior Hamas source. Furthermore, the revised proposal involves mediators to guarantee a temporary ceasefire, aid delivery, and the withdrawal of Israeli troops as long as indirect talks continue to implement the second phase, according to Reuters.
- Egypt is to host Israeli and American delegations to discuss outstanding issues in Gaza and a ceasefire agreement, according to senior sources cited by Al Qahera News TV. It was also reported that CIA Director Burns is expected to visit Cairo this week for Gaza ceasefire talks.
- An Israeli air strike on a school sheltering displaced Palestinians in Gaza’s Al-Nuseirat killed at least 13 people, while the Israeli military said its airstrike targeted militants in an area near a Gaza school. It was also reported that senior Hamas government official Ehab Al-Ghussein was killed by Israel’s air strike in Gaza City, according to Reuters.
- Lebanon's Hezbollah said it launched its “largest” air operation, sending explosive drones at a mountaintop Israeli military intelligence base in the annexed Golan Heights, according to SCMP.
- Moderate Pezeshkian beat his hard-line rival in the Iranian presidential race runoff, according to the interior ministry, while the vote is unlikely to result in a shift of policies but may shape the succession for Iran’s Supreme Leader Khamenei, according to Reuters.
OTHER
- Local Ukrainian authorities say air defences are operating during a rare daytime Russian missile attack, strikes reported in Kyiv. "A series of violent explosions in the center of the Ukrainian capital Kiev", according to Sky News Arabia
- Ukrainian security source said Ukrainian forces hit a Russian munitions depot in the Voronezh region using drones, while a state of emergency was introduced in some parts of the Voronezh region following the drone attack.
- Russia has halted a Ukrainian attempt to hijack a Russian strategic bomber to Ukraine, via Tass; Ozerne airfield was struck to stop this.
- NATO will need 35-50 additional brigades under new plans to defend against Russia; Germany will need to quadruple air defence capacities under new NATO defence plans, according to sources cited by Reuters.
- North Korean leader Kim's sister said South Korea's recent drills near the border are inexcusable and explicit provocation, while she added that if North Korea's sovereignty is violated, North Korea's armed forces will immediately carry out their mission and duty according to the constitution.
- China is developing a new stealth aircraft which will be a fifth-generation fighter jet with stealth function and is likely to be deployed on China’s third aircraft carrier the Fujian, according to Nikkei.
- Philippines President's Office announced the Philippines and Japan signed a reciprocal access agreement
CRYPTO
- Bitcoin is on the rise and paring some of the past week's hefty losses; as it stands the coin holds above USD 57.5k, whilst Ethereum manages to climb back above USD 3k.
APAC TRADE
- APAC stocks were mostly lower as the region failed to resume the momentum from last Friday's dovish post-NFP reaction, while the weekend macro news flow was light aside from the French election results.
- ASX 200 was dragged lower by energy and mining stocks, while a surprise contraction in Home Loans added to the glum mood.
- Nikkei 225 faded after initially bucking the trend and hitting a fresh record high before reversing course, as participants digested mixed data.
- Hang Seng and Shanghai Comp. were pressured with underperformance in Hong Kong amid weakness in property stocks, while the mainland also lacked demand ahead of this week's key releases from China including CPI and the latest trade data
NOTABLE ASIA-PAC HEADLINES
- PBoC said it will conduct a temporary repo or reverse repo based on market conditions effective from July 8th and the tenor of the temp repo or reverse repo will be overnight loans, while it added the move is to maintain banking system liquidity reasonably ample and to increase the accuracy and efficiency of open market operations.
- China's MOFCOM said China's Vice Premier will co-chair the fifth meeting of the Sino-Russian intergovernmental cooperation committee in Russia on July 9th, according to Reuters.
- China’s auto manufacturers association is strongly dissatisfied with the EU Commission’s anti-subsidy tax rate, according to Reuters.
- Tokyo Governor Koike won re-election for a third term, according to exit polls cited by Reuters.
- Japan's government says regular pay rose 2.5% Y/Y, which was the fastest pace of increase since January 1993.
- BoJ raises assessment for 2 of Japan's 9 regions in quarterly report; cuts assessment for 2 of Japan's 9 regions; maintains assessment for 5 of Japan's 9 regions. Many regions said wage hikes are spreading among smaller firms to retain and hire new workers.
- China Auto Industry CPCA says 1.78mln passenger cars sold in June -6.9% Y/Y (vs 1.72mln in May); Tesla (TSLA) exported 11,746 China-made vehicles in June (vs 17,358 in May); says new energy vehicle exports currently face "temporary" pressure.
DATA RECAP
- China FX Reserves (USD)(Jun) 3.222tln (Prev. 3.232tln)
- China Gold Reserves (USD)(Jun) 169.7bln (Prev. 171.0bln)
- Japanese Labour Cash Earnings YY (May) 1.9% vs Exp. 2.1% (Prev. 2.1%)
- Japanese Current Account NSA JPY (May) 2849.9B vs. Exp. 2453.9B (Prev. 2050.5B)
- Japanese Bank Lending YY (Jun) 3.2% (Prev. 3.0%, Rev. 2.9%)
- Australian Home Loans MM (May) -1.7% vs Exp. 1.8% (Prev. 4.8%)
- Australian Owner-Occupied Housing Finance MM (May) -2.0% vs Exp. 2.0% (Prev. 4.3%)
