MARKET WRAPS

Watch For:

Germany foreign trade; trading updates from Repsol, Galp Energia

Opening Call:

European stock futures were higher at the start of the week. Asian stock benchmarks were broadly lower; U.S. Treasury yields edged higher; the dollar consolidated; oil futures and gold declined.

Equities:

European stock futures were tracking higher despite a negative lead from U.S. stock futures. The surprising outcome of the second round of French elections will be in focus with investors watching how French government bonds, French banking stocks, the CAC-40 index, and the euro react.

The New Popular Front, a coalition of leftist parties, is projected to win the most seats in France's parliamentary elections but fall far short of a majority, raising the specter of a hung parliament. Citi Research analysts cautioned that France could undergo prolonged political instability and opacity.

The U.S. inflation data is another highlight this week after the jobs report for June showed signs that the labor market is softening. Traders were pricing in a 75% probability of easing at the Fed's September meeting. Stocks could be choppy over the next few months as investors wait for more clarity about inflation.

"You have to be poised for more volatility, but that could create an entry point," said Cindy Beaulieu, chief investment officer of Conning North America. "If you get a pullback, there could be a buying opportunity."

Fed Chairman Powell's two-day testimony before lawmakers will also be in focus along with the start of the corporate earnings season.

Forex:

EUR/USD may fall early this week, with the left-wing New Popular Front coalition projected to have won the most seats in France's National Assembly, CBA's Global Economic & Markets Research said.

The parties in the coalition want a big increase in spending that will raise France's already large budget deficit and debt, it noted. Though well short of a majority, at least some parties in the coalition will probably be influential in a new government, if one can be agreed, it added.

An "ineffective government and risks of a rising debt profile certainly won't do EUR any favors over months ahead," TD Securities strategists said.

Bonds:

The newly-elected Labour government is expected to uphold fiscal discipline, a move likely to lower the yields on U.K. government bonds, or gilts, David Zahn, head of European fixed income at Franklin Templeton, said.

"We anticipate Labour wanting to maintain the fiscal responsibility without any major structural changes which should be supportive for U.K. gilts, especially as we anticipate the Bank of England to embark on their interest rate cutting cycle," he said.

Investors will focus on Labour's first budget in October to understand the government's plans for the economy, spending, and funding, Zahn added.

Energy:

Oil fell in Asia as traders digest the mixed U.S. employment report released Friday. That has kept market participants guessing about the health of U.S. consumers, and thereby demand for oil, said Fawad Razaqzada, market analyst at City Index and forex.com.

This week, market participants will likely want to monitor inventories data for whether the recent decline in stockpiles was just an anomaly or whether more oil will be drawn from inventories, the analyst added.

"If we see more drawdowns, then this should further support the oil-price recovery."

Metals:

Gold is lower in early Asian trading in a possible technical correction.

"With likely future Fed rate cuts and dollar weakness, gold prices are likely to rise on trend," said Jason Schenker, president of Prestige Economics. "Further slowing of U.S. inflation, increased geopolitical and political risks, and dollar weakness are poised to send gold prices higher."

--

Copper edged higher with prices heading towards $10,000/ton as market sentiment was lifted by increasing expectations for the Fed's monetary policy easing, ANZ Research analysts said.

Also, recent data from the Shanghai Metals Market showed that the premium paid on imported copper reverted to positive territory for the first time in almost two months as China demand slowly recovers, ING said.

--

Iron-ore prices declined. Markets likely have some doubt on the sustainability of the recovery in the Chinese property sector, the ANZ Research team said.

Chinese port inventories for iron ore have also continued to increase, reflecting a weaker offtake from steel mills for metal production, they added.


TODAY'S TOP HEADLINES

Earnings Season to Test Investors' Faith in Big Tech Stocks

An elite cadre of tech giants that drove the stock market to records is under pressure to keep the party going this earnings season.

The S&P 500 has climbed 17% this year, fueled by investor excitement over artificial intelligence that has sent shares of Nvidia and its fellow tech titans to dramatic heights. The chip maker's stock has more than doubled this year, pushing its market value above $3 trillion. Alphabet, Meta and Microsoft have surged as well, with all logging double-digit gains.


French Leftist Coalition Prevails in Parliamentary Elections

PARIS-A coalition of leftist parties won the most seats in France's parliamentary elections, according to projections based on ballot counts, in a stunning come-from-behind victory fueled by a groundswell of opposition to Marine Le Pen's anti-immigrant forces.

A projection by polling firm Elabe estimated that the New Popular Front, a coalition of parties that includes socialists, greens and far-left France Unbowed, is expected to garner between 184 and 186 seats in the 577-seat National Assembly. The party of President Emmanuel Macron and its allies won between 160 and 162, according to Elabe, while Le Pen's National Rally and its allies scored between 141 and 143 seats.


This week's U.S. inflation report could have serious implications for stocks

Thursday's inflation report is expected to be the main event for U.S. markets during a busy week that also includes the start of the second quarter corporate earnings reporting season, a handful of Treasury debt auctions, and potential developments in the presidential election race.

Like all marquee economic releases, the June consumer price index numbers could have serious ramifications for markets, but investors will be paying especially close attention this month, as the timing of the Federal Reserve's first interest-rate cut could hang in the balance.


How stock-market investors are making sense of Biden candidacy uncertainty

Will he or won't he? Joe Biden's fate as the Democratic nominee - and perhaps as president for the remainder of his term - remains up in the air as calls by Democrats to step aside have yet to be calmed following his disastrous June 27 television debate performance.

For his part, Biden insisted in a Friday interview with ABC News that he would remain in the race, saying only the "Lord Almighty" would be able to persuade him to drop out, but congressional Democrats and some major donors have urged him to weigh whether he should remain in the race.


Crushing Debts Await Europe's New Leaders

New governments in Europe are being handed a poisoned chalice. They are being elected with mandates for change, but only limited means at their disposal to enact it.

Public debt is close to multidecade highs on both sides of the English Channel, where voters this week were electing new parliaments. In both France and the U.K., government spending and budget deficits as a share of gross domestic product are significantly above prepandemic levels. Economic growth remains lackluster, borrowing costs have surged, and demands on the public purse are rising, from defense to old-age pensions.


European Rocket Launch Takes Aim at SpaceX

PARIS-A new European rocket is poised to blast into space with a mission officials here say is vitally important: reducing the region's reliance on Elon Musk and SpaceX.

Europe's satellites and military intelligence have come to depend on the U.S. company after delays and malfunctions left the continent unable to get to orbit with its own rockets. Officials fear that dependence could extend to the battlefield: SpaceX's Starlink internet service has been crucial for Ukraine to fight off Russia, fanning worries in Europe that its armies might also need Musk for satellite communications in a war.


World Leaders Brace for Trump

WASHINGTON-Donald Trump has provoked U.S. allies for years, questioning NATO's relevance, demanding greater financial contributions and recently musing about the possibility of not protecting members who aren't paying enough for defense.

Now, with members of the alliance and other U.S. partners converging on Washington this week to celebrate the 75th anniversary of the North Atlantic Treaty Organization, heads of state are scrambling to find a common language with the Republican presidential candidate whose chances of winning in November have grown, according to the latest poll numbers.


Paramount Global Agrees to Skydance Deal

Paramount Global agreed to a deal that would merge the storied Hollywood company with David Ellison's Skydance Media, according to people familiar with the matter, moving the complicated transaction a step closer to completion.

The deal, once closed, would mark the end of an era for Shari Redstone, whose family for decades controlled Paramount through National Amusements. The agreement will give the beleaguered entertainment giant an injection of cash at a time when the traditional media landscape is in decline.


For AI Giants, Smaller Is Sometimes Better

The start of the artificial-intelligence arms race was all about going big: Giant models trained on mountains of data, attempting to mimic human-level intelligence.

Now, tech giants and startups are thinking smaller as they slim down AI software to make it cheaper, faster and more specialized.


Write to singaporeeditors@dowjones.com


(MORE TO FOLLOW) Dow Jones Newswires

07-08-24 0015ET