(Repetition without change of a dispatch sent on Friday)

(Reuters) – European elections are attracting almost as much attention as Euro 2024 soccer, with the first round of French parliamentary elections on Sunday expected to influence markets regardless of the outcome, while Britain could swing to a left-wing government for the first time in 14 years.

France and England, considered favorites for Euro football, as well as Germany, the host country, enter the round of 16 of the competition. But the excitement is not limited to football fields or voting booths.

The coming days will also be marked by macroeconomic indicators, notably the monthly employment figures in the United States.

Overview of the market outlook for the coming days:

1/JOBS DAY IN THE USA

Investors on the lookout for the timetable for the rate cut by the American Federal Reserve (Fed) could have new information with the publication next Friday of the official monthly report on American employment.

Economists are forecasting an increase of 180,000 nonfarm payrolls in June. In May, payrolls rose by 272,000, much more than expected, a sign of the resilience of the U.S. labor market.

The Fed kept its key interest rates unchanged this month and suggested that the start of its monetary easing was being pushed back to December as bank officials await more evidence of moderating inflation and deteriorating employment.

Consumer prices in the United States unexpectedly stagnated in May, after increasing by 0.3% in April.

2/THE FRENCH AT THE POLLS

France will go to the polls on Sunday, the first round of early legislative elections that have shaken the markets.

Before the results of the second round scheduled for July 7, investors will be attentive to the potential triangular races in the 577 constituencies. With a voting system where a candidate must collect the votes of at least 12.5% ​​of registered voters (and not votes) to qualify for the second round, the uncertainty about the final result is significant, especially in the event of a high turnout. In fact, the more registered voters vote, the greater the possibility of seeing candidates reach 12.5% ​​of the electorate.

Market fears over an increase in public spending have eased somewhat since officials from the National Rally (RN), the far-right party leading the polls, promised to put an end to decades of large public deficits. . Many analysts, however, consider that a left-wing majority, united under the “New Popular Front” (NFP) label, is more risky for the financial markets.

The risk premium (“spread”) on France’s ten-year debt compared to that of Germany, an indicator closely watched by the markets, is still more than 25 basis points above the level observed before the announcement of the early elections. French banking stocks, for their part, are posting double-digit losses.

3/MIXED RECOVERY OF M&A

Global mergers and acquisitions volumes increased 20% in the first half of 2024 compared to 2023, while deals exceeding $5 billion jumped 53%, according to data provided by Dealogic.

Despite the recovery, trading volumes as of June 24 remain 15% below the ten-year average, partly due to a sluggish start to the second quarter, the slowest in the Asia-Pacific region since 2009.

The number of transactions announced in the second quarter of 2024 is the lowest in the last 16 years, a result worse than that of the second quarter of 2020, when the COVID-19 pandemic shut down parts of the economy, notably the global mergers and acquisitions activities.

The outlook for the rest of the year is not very encouraging, given the upcoming elections in France, the United Kingdom and especially the United States, which will force boards of directors and private equity funds to play down their plans.

Some investment bankers are wondering whether they should instead focus on 2025, a year they hope will finally live up to their expectations.

4/HARD WORK AWAITS THE PLOUGH

Polls predict a landslide victory for the opposition Labor Party in Britain’s July 4 general election. A clear majority for Labor would benefit UK stocks and government bonds, as sterling has rebounded to levels not seen since the 2016 Brexit vote.

Traders are primarily welcoming a return to stability after the political turbulence of the Conservatives’ 14-year rule. They also believe that Labour leader Keir Starmer could rebuild trade ties with Europe.

Britain faces huge fiscal challenges, but neither Labour nor the Conservatives have provided details on how to tackle them, the Institute for Fiscal Studies think tank notes.

The country’s economic growth is also modest while the public debt/GDP ratio has reached its highest level in 63 years and tax rates are at their highest since 1949.

With voters expecting better public services without tax rises and investors wanting government borrowing to stabilize, Keir Starmer may struggle to satisfy both groups.

(Written by Lewis Krauskopf in New York, Rae Wee in Singapore, Yoruk Bahceli in Amsterdam and Andres Gonzalez and Naomi Rovnick in London; compiled by Amanda Cooper; infographics by Pasit Kongkunakornkul, Prinz Matgulis; Claude Chendjou)

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