MNI US Open: Fed's Hawkish Turn Still Being Digested

EXECUTIVE SUMMARY:

• REBUKES FOR MACRON AND LE PEN AS FRENCH VOTERS AVOID 1ST ROUND OF REGIONAL ELECTIONS
• SWEDEN SINKS INTO POLITICAL CHAOS AS P.M. LOSES CONFIDENCE VOTE
• CHINA ASKS BANKS, ALIPAY NOT TO INVOLVE IN CRYPTO OPERATIONS
• E.U. SET TO APPROVE MORE BELARUS SANCTIONS OVER RYANAIR FLIGHT

Fig.1: Spread Of Treasury Yields Over Bunds Continues To Narrow

Source: BBG, MNI

NEWS:

FRANCE (MNI POLITICS): Both President Emmanuel Macron's Republique En March (REM) and Marine Le Pen's right-wing nationalist National Rally (RN) performed well below expectations in the first round of elections for France's regional presidencies held on Sunday according to preliminary results. The outperformers were France's historically dominant political groups, the centre-right Gaullist Les Republicains (LR) and their allies, and the centre-left Socialist Party (PS) and their allies.

• The RN came in first place in the first round in only one province, Provence-Alpes-Côte d'Azur in the far south-east of the country. This compares starkly with the last regional elections held in 2015, when the then-National Front came first in six regions in the first round vote.
• REM and its allies are not leading in any regions, and in the north eastern Hauts-de-France region the party looks set to fail to make the second round (where winning just 10% of the vote is required).
• Alongside the poor performance of the two parties expected to make it through to the second round of the presidential election in 2021, the major story of the election was the poor turnout. Initial estimates put turnout at just 32%, well down on the 49% recorded in 2015 and 53% in 2010. LR and PS were able to exploit this low turnout in their historic heartlands to secure victories in areas where they are incumbents heading into the second round.
• Focus this week will turn to moderate parties that came in third place or below in the first round. Many will be under pressure to withdraw from the second round and lend their support to other moderates in order to keep the RN candidate from winning power, although there is no guarantee such an agreement will take place.

SWEDEN (BBG): Sweden's Prime Minister Stefan Lofven lost a confidence vote in parliament, toppling his minority coalition and plunging the largest Nordic economy into political chaos.Lofven now has a week to decide whether to call snap elections. He's due to hold a press conference at 11:30 a.m. local time. If Swedes are forced to head to the polls early, it would be the first time since 1958. If Lofven doesn't call a snap election, the speaker of parliament will ask the biggest parties to try to form a new government.

CHINA/CRYPTOCURRENCY (BBG): China's PBOC has recently summoned Alipay and several local banks over providing services to virtual currency tradings, according to a statement.

E.U.-BELARUS (BBG): European Union governments are set to sanction several sectors of Belarus's economy including industries connected to the soil nutrient potash and petroleum, as well as 86 individuals and entities, as the bloc increases pressure on President Alexander Lukashenko.Josep Borrell, the EU's foreign policy chief, said foreign ministers meeting in Luxembourg on Monday will approve the measures targeting people and companies and discuss a separate package of economic sanctions which will be presented to EU leaders at a summit later this week.The economic sanctions "will affect sectors of the Belarusian economy which are directly linked to exports," Borrell told reporters on his way into the meeting. "Sanctions are a way of putting pressure on the government of Belarus, and these are going to hurt the economy of Belarus, heavily."

HONG KONG / COVID (BBG): Hong Kong will shorten hotel quarantine to seven days for fully vaccinated residents traveling from most places, as well as non-residents inoculated against Covid-19, in its most significant move yet to ease one of the strictest border curbs in the world.The keenly anticipated moves are part of a broader loosening of restrictions announced by Chief Executive Carrie Lam at a briefing Monday, which she said was a symbolic day as it marked two weeks without any new local coronavirus cases. Other plans include lifting capacity restrictions at some restaurants and swimming pools.The shortening of hotel quarantine will begin on June 30 and apply for Hong Kong residents, Lam said, adding that non-residents could be eligible within a month from that date. At present, travelers are required to serve mandatory hotel quarantine of up to 21 days.

EUROZONE: Euro area house prices grew at their fastest rates since mid-2007, according to the June edition of the European Central Bank's Economic Bulletin, with growth hitting 5.8% in the last quarter of 2020 compared with 4.3% at the end of 2019. By contrast, house prices contracted during both the financial crisis of 2008 and the 2010 sovereign debt crisis.

EUROZONE: Europe's current account surplus narrowed from 2.3% to 2.2% of GDP between 2019 and 2020, the European Central Bank's latest Economic Bulletin shows, although a sharp drop in nominal GDP as a result of the Covid-19 pandemic and lockdown restrictions saw its real value fall from EUR 280 billion to EUR 250 billion.

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