by CORENTIN CHAPPRON

PARIS (Reuters) – European stock markets are expected to be mixed on Monday, with the unexpected outcome of the French elections unsettling investors who are also bracing for a salvo of key indicators this week.

According to the first available indications, the Parisian CAC 40 is down 0.17% at the opening. Futures contracts on the FTSE in London, the Dax in Frankfurt and the EuroStoxx 50 are not showing any marked direction.

The left-wing alliance of the “New Popular Front” (NFP) came out on top in the second round of early legislative elections in France on Sunday, with 182 seats, ahead of the presidential camp (163 seats) and the National Rally and its allies (143 seats).

Investors are relieved to see that the RN did not win an absolute majority, but this surprise scenario outlines a difficult to govern National Assembly which could ultimately put pressure on French assets.

“Today’s ‘shock’ could bring volatility to the French and European markets more quickly than expected. It will be absolutely necessary for the Macron government to clarify the solution (a new government reshuffle on the horizon?) so that investors are ‘reassured’,” believes John Plassard, director at Mirabaud.

Markets will be paying close attention this week to the salvo of indicators expected in the United States.

Federal Reserve Chairman Jerome Powell will address both chambers on Tuesday and Wednesday, and could comment on the central bank’s next moves as the presidential election approaches and recent employment data suggests a slowdown in labor markets.

The official is nevertheless expected to be cautious, with CPI inflation for June due on Thursday. The consensus is for inflation to fall from 3.4% to 3.1% over the year, but with core inflation stable.

The second-quarter earnings season kicks off in the United States on Thursday, with several major US banks, including JPMorgan, releasing their figures on Friday.

ON WALL STREET

The New York Stock Exchange ended higher on Friday, with most large caps hitting new records after the latest US employment figures were released, which reinforced hopes of an upcoming rate cut by the Federal Reserve.

The Dow Jones Industrial Average gained 0.2 percent, or 67.87 points, to 39,375.87. The broader Standard & Poor’s 500 gained 30.17 points, or 0.5 percent, to 5,567.19, setting a third consecutive record high. The Nasdaq Composite advanced 164.457 points, or 0.9 percent, to 18,352.759, hitting a new high for the fourth consecutive day.

IN ASIA

The Tokyo Stock Exchange is hesitant, with gains remaining limited under pressure from profit-taking. The Nikkei index gained 0.09% to 40,949.62 points, while the broader Topix index lost 0.28% to 2,876.19 points.

SoftBank Group is up 1.74% after Arm Holding, a chip designer 90% owned by the Japanese group, soared to a record on Friday.

Chinese indices are falling, with the latest indicators released last week showing that the domestic economy continues to slow. Hong Kong’s Hang Seng Index is down 1.38%, Shanghai’s SSE Composite is down 0.57%, and the CSI 300 is down 0.46%.

RATE

US yields are rebounding slightly as investors position themselves for a week rich in indicators and monetary policy elements.

The 10-year Treasury yield climbed 2.1bp to 4.294%, while the two-year rate rose 2.1bp to 4.6202%.

In Europe, French debt is expected to react to political uncertainty in the country.

CHANGES

The euro fell as investors worried about the prospects of a divided French National Assembly limiting budget reforms.

The dollar was stable against a basket of benchmark currencies, while the euro was down 0.09% at $1.0826.

The pound was unchanged at $1.281.

In Asia, the yen strengthened by 0.11% to 160.55 yen per dollar, the Australian dollar remained unchanged at 0.6749 dollars.

OIL

Oil fell after four consecutive weekly gains as Israel and Hamas discussed a proposed U.S.-proposed ceasefire.

Brent fell by 0.16% to $86.4 per barrel and US light crude (West Texas Intermediate, WTI) fell by 0.32% to $82.89.

(Edited by Blandine Hénault)

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