Asia stocks stutter, euro gains after France election

Asian stocks were subdued on Monday as traders pondered the US rates outlook, while the euro edged higher after the far-right won a smaller share of the vote in the first round of France's snap election than some polls had projected.

The euro was 0.32 per cent higher at $US1.0747, while European stock futures rose one per cent as exit polls showed Marine Le Pen's eurosceptic National Rally emerged ahead in the first round of the French vote but with fewer votes than some analysts had forecast.

The shock vote has unsettled markets as the far-right, as well as the left-wing alliance that came second on Sunday, have pledged big spending increases at a time when France's high budget deficit has prompted the EU to recommend disciplinary steps.

"Perhaps the result isn't as bad as the market had feared," Michael Brown, senior strategist at Pepperstone.

Get in front of tomorrow's news for FREE

Journalism for the curious Australian across politics, business, culture and opinion.

READ NOW

"We've also seen a lot of rhetoric form other parties looking to perhaps pull out candidates to try and avoid the National Rally winning seats in the runoff next Sunday ... The market may be taking a little bit of solace in that."

The focus now shifts to next Sunday's runoff and will depend on how parties decide to join forces in each of the country's 577 constituencies for the second round, leaving investors still uncertain and jittery.

"With this result, markets are looking into another week of really high uncertainty. Probably fear, as it is still possible for RN to gain an absolute majority next week," said Carsten Brzeski, global head of macro at ING in Frankfurt.

In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan was 0.18 per cent lower, to kick off the second half of the year having risen seven per cent so far in 2024. Japan's Nikkei rose 0.57 per cent.

Meanwhile, China's manufacturing activity fell for a second month in June while services activity slipped to a five-month low, an official survey showed on Sunday, keeping alive calls for further stimulus as the economy struggles to get back on its feet.

On the macro side, the spotlight remains on if and when the Federal Reserve will start cutting rates in the wake of data on Friday showing US monthly inflation was unchanged in May.

In the 12 months through May, the PCE price index increased 2.6 per cent after advancing 2.7 per cent in April. Last month's inflation readings were in line with economists' expectations. They remain above the Fed's two per cent target for inflation.

Still, markets are clinging to expectations of at least two rate cuts from the Fed this year with a cut in September pegged in at 63 per cent probability, CME FedWatch tool showed.

US stocks on Friday ended lower after an early rally fizzled.

Among currencies, the yen traded around 160.98 per dollar after the government, in a rare unscheduled revision to gross domestic product (GDP) data on Monday, said Japan's economy shrank more than initially reported in the first quarter.

Data also showed Japan's factory activity stayed unchanged in June amid lacklustre demand and as companies struggled with rising costs due to the weak yen.

The dollar index, which measures the US unit against six rivals, was last a touch lower at 105.65.