by Diana Mandia
(Reuters) – Wall Street is expected to remain directionless and European stocks are up in mid-session trading after opening in the red, as the unexpected victory of the New Popular Front (NFP) in France eased fears of a possible far-right government in the euro zone’s second-largest economy.
New York index futures point to a 0.06% opening gain for the Dow Jones, 0.02% for the Standard & Poor’s 500 and 0.01% for the Nasdaq.
In Paris, the CAC 40 gained 0.26% to 7,695.90 points at around 11:45 GMT. In Frankfurt, the Dax advanced by 0.40% and in London, the FTSE 100 by 0.30%.
The EuroStoxx 50 index is up 0.45%, the FTSEurofirst 300 is up 0.39% and the Stoxx 600 is up 0.40%.
The unexpected victory of the left-wing NFP alliance in the second round of early legislative elections in France, as well as the weaker-than-expected result of the National Rally (RN), have somewhat relieved investors, even if uncertainties remain regarding the formation and economic program of the next government.
The new National Assembly will be divided into three blocs and no party will have an absolute majority, but according to some analysts, who feared a deterioration in public finances in the event of a resounding success of the RN or the NFP, this should not be too negative for French workers.
According to UBS, a meeting without an absolute majority “is probably the best outcome for European equities”, even if volatility could remain high and the risk of institutional blockage is significant.
“Market uncertainty has diminished somewhat following the elections, as the prospects for significant increases in public spending are low, given that neither the left nor the far-right parties have obtained an absolute majority,” said Bruno Schneller, managing director of Erlen Capital Management.
This lack of an absolute majority in the National Assembly risks complicating policy-making in the country and France’s credit rating could be “under pressure” in the event of persistent weakness in the economy or prolonged public deficits, the rating agency S&P Global said on Monday.
On the macroeconomic front, the Sentix index published on Monday shows that investor sentiment in the euro zone deteriorated more than expected in July, ending eight consecutive months of increases. STOCKS TO FOLLOW ON WALL STREET
Boeing has agreed to plead guilty to criminal fraud and pay a $243.6 million fine to settle a lawsuit with the U.S. Department of Justice (DOJ) over two fatal 737 MAX crashes in 2018 and 2019, the U.S. government said in a court filing Sunday.
VALUES IN EUROPE
In Paris, French banks, which have been battered since the announcement of early legislative elections in June, were hesitant at mid-session on Monday: BNP Paribas lost 0.2% while Société Générale and Crédit Agricole gained 0.3% and 0.9% respectively.
The European compartment of the sector increased by 0.83%.
French media groups TF1 and M6 are up between 3.8% and 4.1% after the RN failed to obtain the expected majority in the National Assembly, which, according to analysts, pushes back a potential privatization of public broadcasting.
Companies linked to public works and concessions, such as Vinci and Eiffage, are also in the green. According to Jefferies analysts, the orientation of the NFP program, which favors investments in infrastructure, is favorable to demand, while, without a victory of the RN, the possibility of a new tax on groups in the sector or of a nationalization seems to be moving away.
Elsewhere in Europe, Delivery Hero fell 5.4% as the German food delivery company said the European Commission could fine it more than €400 million for antitrust practices.
RATE
Bond yields were fairly stable in the eurozone on Monday.
The yield on the ten-year German Bund gained 1.5 basis points to 2.5470% and the two-year 2.6 basis points to 2.9190%.
In France, the yield on the ten-year OAT fell by 0.2 basis points to 3.2130%.
Under pressure since President Emmanuel Macron’s surprise call for legislative elections in June, the gap between German and French 10-year bond yields, which is used to measure investor confidence in sovereign debt, has narrowed to 66.4 points.
ODDO analysts indicate that the spread should remain volatile, however, due to risks linked to the political situation in France.
“The French risk premium has no reason to fall back to the level of a month ago when this risk did not exist. It would rather have reasons to increase if the budgetary process is delayed or if the chosen direction moves France away from a credible trajectory of cleaning up public accounts,” they write in a note published Monday.
In the United States, the yield on 10-year Treasuries rose 2.9 basis points to 4.3018% ahead of events later this week. Federal Reserve Chairman Jerome Powell will address the US Congress and Senate on Tuesday and Wednesday to comment on the central bank’s monetary policy, and US CPI inflation for June will be released on Thursday.
CHANGES
On the foreign exchange market, the dollar gained 0.06% against a basket of benchmark currencies, while the euro lost 0.07% to 1.0828 dollars after recovering from losses suffered overnight following the results of the French elections.
OIL
Oil prices fell on Monday after recent gains. Concerns about supply disruptions eased on hopes of a Gaza ceasefire deal, but the potential impact of Hurricane Beryl kept losses in check.
Brent lost 0.66% to $85.97 per barrel and light American crude (West Texas Intermediate, WTI) 0.89% to $82.42.
(Written by Diana Mandiá, edited by Kate Entringer)
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