MNI US OPEN - France's Le Pen Slumps to Third Place as Left-Wing Surge

EXECUTIVE SUMMARY

• FRANCE'S LE PEN SLUMPS TO THIRD PLACE AS LEFT-WING SURGE
• NINE HOUSE DEMOCRATS CALL FOR BIDEN TO STEP ASIDE
• UK’S REEVES TO UNVEIL LABOUR’S GROWTH PLAN IN FIRST SPEECH
• PBOC STARTS TEMPORARY OMO TOOLS TO ADJUST LIQUIDITY

MNI (LONDON) - Figure 1: France second-round legislative election results

Source: Politico

NEWS

FRANCE (MNI): 'Republican Front' Snuffs Out RN Rise, Focus Now on Political Paralysis

Efforts by the leftist New Popular Front (NFP) and President Emmanuel Macron's centrist ​Ensemble ​bloc to form a 'republican front' in the second round of legislative elections on 7 July to limit gains for the right-wing nationalist ​Rassemblement National ​(National Rally, RN) have worked extremely effectively. Despite the RN leading all pre-election polling and winning a plurality of the vote (37.1%), the party came in a disappointing third place with 142 of the 577 seats, a gain of 53. The major beneficiaries are the NFP, which won only 25.8% of the vote but emerges as the largest political force with 180 seats in the National Assembly. Ensemble came in second place with 159 seats, a loss of 86

US (WaPo): Nine House Democrats Call for Biden to Step Aside as He Seeks to Energize His Campaign

The political crisis surrounding President Biden deepened Sunday as the number of House Democrats who are calling on the president to step aside rose to nine after a weekend in which Biden campaigned in the must-win state of Pennsylvania, aiming to shore up his precarious candidacy. Four senior House Democrats forcefully declared Sunday during an off-the-record call with House Democratic leadership that they believe Biden should step aside: Reps. Jerry Nadler (N.Y.), Adam Smith (Wash.), Mark Takano (Calif.) and Joseph Morelle (D-N.Y.), according to two people on the call. They join five other House Democrats who have publicly called on Biden to drop his reelection bid or have said they believe Donald Trump will beat him in November.

UK (BBG): UK’s Reeves to Unveil Labour’s Growth Plan in First Speech 

Rachel Reeves will lay out the new Labour government’s plans to spur private investment in her first major speech as Chancellor of the Exchequer on Monday, as the party tries to ride the momentum of its landslide UK election win last week in a dash for economic growth. There is “no time to waste” in lifting Britain’s growth rate, Reeves will tell business leaders in central London, pledging to “fix the foundations” of the UK economy, according to remarks sent in advance by the Treasury.

UK (The Times) UK Foreign Secretary David Lammy Calls for ‘Fresh Start’ with EU

David Lammy pledged a “fresh start” to Britain’s relationship with the EU as he embarked on a tour to sell Labour’s plan for a security pact to lock in support for Ukraine. The new foreign secretary said he wanted to “seize the opportunity” of a change in government to reset relations with the EU and rebuild trust. He said this would be “just the beginning”.

CHINA (MNI): PBOC Starts Temporary OMO Tools to Adjust Liquidity

MNI (Beijing) The People’s Bank of China will conduct temporary repurchase operations to promote open market operations efficiency, according to a statement on its website on Monday. The central bank will conduct temporary overnight repurchase or reverse repurchase operations as needed, from 16:00 to 16:20 pm Beijing time on trading days, using a fixed rate and quantity bidding method, the statement said.

CHINA/HUNGARY (BBG): Xi Repeats Call for Ukraine Cease-Fire in Talks With Orban

Chinese leader Xi Jinping repeated his call for a cease-fire in Ukraine during a surprise meeting with visiting Hungarian Prime Minister Viktor Orban, who has upset Europe with a self-styled “peace mission.” Xi said the priority now should be a “deescalation as quickly as possible,” according to a post on X by a spokesperson for the Foreign Ministry in Beijing, echoing comments his nation has made since Russia’s full-scale invasion in 2022. Orban lauded China, according to Hungary’s state-run MTI news outlet, crediting it with “firmness and stability.”

JAPAN (BBG): Tokyo Governor Koike Wins, Providing Some Relief for Kishida

Tokyo Governor Yuriko Koike secured a victory to lead the Japanese capital for a third term, providing some relief for struggling Prime Minister Fumio Kishida and his ruling party that supported her. Koike beat a record 55 challengers with 42.8% of the vote, including Renho Saito who was backed by the main opposition Constitutional Democratic Party. Renho, who generally goes by her given name, came in third with 18.8%, while Shinji Ishimaru, a former mayor in Hiroshima who gained attention with a strong social media campaign and a slew of public appearances, took second with 24.3%, results posted by national broadcaster NHK showed. 

JAPAN (MNI): Wage Hikes at Smaller Firms Spreading - BOJ

Many Bank of Japan branch managers see wage hikes embedding across many parts of the economy, including at smaller firms, the latest regional economic report showed. However, some managers warned there are firms that refrained from wage hikes due to severe profit conditions, while other firms are raising wages to ensure current staff levels are sufficient, although they don’t have funds for wage hikes.

RUSSIA/INDIA (BBG): Putin Hosts Modi After Hailing ‘Best in History’ China Ties

Indian Prime Minister Narendra Modi will visit Russia on Monday for the first time in five years at a time when Moscow is deepening its embrace of New Delhi’s rival, China. Modi is set to meet with Russian President Vladimir Putin during the visit, which will stretch into Tuesday. India’s Foreign Secretary Vinay Kwatra told reporters in New Delhi that given the lack of recent summits, several issues on the bilateral agenda “have piled up, which need to be addressed.”

BITCOIN (BBG): Bitcoin’s Mt. Gox Woes Add to Signs of Teetering Crypto Rebound

Bitcoin is under pressure again on concerns about possible sales of the token by creditors of the failed Mt. Gox exchange, a retreat stoking doubts about the remaining impetus in a crypto bull run that began last year. The largest digital asset slid as much as 5.2% on Monday before paring some of the wobble to trade at $55,800 as of 8:30 a.m. in London, some $18,000 below March’s record high. Smaller tokens such as Ether and XRP struggled too. Tokyo-based Mt. Gox, which went bankrupt a decade ago after being hacked, is returning about $8 billion of Bitcoin to creditors in stages, raising concerns about a potential wall of supply coming into the market.

DATA

GERMAN DATA (MNI): Broad-Based Trade Activity Declines Notwithstanding Higher Surplus

• GERMANY MAY TRADE BALANCE E24.9bln (E20.3bln F'CAST, E22.2bln APRIL) 
• GERMANY MAY EXPORTS -3.6% M/M; IMPORTS -6.6% M/M 

The German trade surplus widened more than forecast, to E24.9bln (seasonally-adjusted, vs E20.3bln cons; E22.2bln prior, revised from E22.1bln) amid a heavy drop in imports of 6.6% M/M (vs -1.0% cons; +1.2% prior, revised from +2.0%). Exports also fell but less so than imports, at -3.6% M/M (vs -2.8% cons; +1.7% prior, revised from +1.6% prior). * While these are nominal, not real, figures and thus don't account for price  volatility, to put it into perspective, the trade surplus widened to the  equivalent of about 6.2% of nominal GDP on a 12-month rolling basis - up from  about 6.0% last month and the highest since March 2020.

JAPAN DATA (MNI): Japan June Sentiment Index, Outlook Index Both Rise

Japan's June sentiment index and the outlook index for two to three months ahead both rose for the first time in four months, easing concern over weaker private consumption, the Economy Watchers' survey released by the Cabinet Office showed Monday. The Economy Watchers sentiment index for the current economic climate stood at a seasonally adjusted at 47.0 in June, up from 45.7 in May, while the outlook index for two to three months ahead rose 1.6 points to 47.9 from 46.3.

JAPAN DATA (MNI): Japan May Negative Real Wage Widens to -1.4%

Japan’s year-on-year fall in inflation-adjusted real wages, a barometer of household purchasing power, widened to 1.4% in May from April’s 1.2%, preliminary data from the Ministry of Health, Labour and Welfare showed on Monday. May’s real wages have stayed in negative territory for 26 straight months, the longest period on record, showing household income hasn’t kept pace with price rises. However real wages are expected to trend towards positive territory as early as Q4.

FOREX: EUR Recovers Opening Dip as Election Results Digested

• The EUR gapped lower at the open as the second round of French legislative elections showed the right-wing RN falling short of a majority after a more resilient showing than expected from the centrist and left-wing parties. Political paralysis is now the assumption for France's National Assembly out to the 2027 Presidential elections, but the single currency has shrugged off those concerns into the NY crossover, helped by the gradual re-tightening of the Bund/OAT yield spread.
• JPY has resumed its weakening trend, allowing USD/JPY to trade higher for the first session in three. Price is back above the Y161.00 level, with focus remaining on the cycle best printed last week at Y161.95 before any intervention speculation can resume.
• Elsewhere, CHF, CAD trade firmer, but within recent ranges. JPY and NOK are the poorest performers in G10. 
• The schedule is typically light for a Monday, with just the NY Fed's one-year inflation expectations data on the docket, as well as an appearance from BoE's Haskel - the first MPC member to speak since last week's UK General Election. 

EGBS: Bunds Slightly Underperform OATs Following French Election Result

Bund futures slightly underperform OATs as markets unwind a degree of political risk premium following the French second round legislative election results.

• OAT futures are currently -17 at 123.72, though reached an intraday low of 123.36 before the European cash open.
• The leftist NFP surprisingly won the most votes in the second round, though fell well short of an overall majority.
• The result has provided a fresh wave of uncertainty around French politics (and by extension, fiscal dynamics), prompting initial sell-side reactions to be cautious on OATs.
• The German and French cash curves have lightly bear flattened, while the 10-year OAT/Bund spread is around ~0.5bp tighter at ~64.5bps.
• 10-year peripheral spreads to Bunds have followed OATs tighter.
• The remainder of today’s regional calendar is light, leaving focus on the French election fallout.

GILTS: Off Lows, Bulls Eye Recent Highs in Futures, Reeves & Haskel Due

Gilts have recovered from early lows, futures last -9 at 97.92.

• Friday’s high protects the June 28 high (98.24). A clear break higher would put bulls in control after an early July pullback.
• Yields are unchanged to 1.5bp higher, curve a touch steeper.
• Fallout from the French election dominates so far.
• The DMO confirmed that a long gilt will be sold via syndication in September, this had no tangible impact on markets.
• SONIA futures are essentially flat. BoE-dated OIS is also little changed, showing ~15.5bp of cuts for the Aug MPC and ~47.5bp of easing through year end.
• BoE hawk Haskel will speak at 17:15 London, text to be released at 12:00.
• Chancellor Reeves will speak at 10:30. She is set to make kickstarting growth a "national mission," housebuilding targets/goals are also due to be outlined.

EQUITIES: Recent Gains Reinforce Bullish Set Up for E-Mini S&P

Eurostoxx 50 futures traded higher last week. Attention is on resistance at 5039.84, the 61.8% retracement of the May 16 - Jun 14 sell-off. It was pierced Friday, a clear break of it would be a positive development and suggest scope for an extension of the bull cycle that started Jun 14. This would open 5082.32, the 76.4% retracement point. On the downside, a reversal would refocus attention on 4846.00, Apr 19 low and a key support. The trend condition in S&P E-Minis is bullish and Friday’s gains reinforce this set-up. Resistance at 5430.75, the May 23 high and bull trigger, has recently been cleared. This confirmed a resumption of the primary uptrend. The move higher last week confirmed a recent bull flag formation - a continuation signal - on the daily scale, further reinforcing bullish conditions. Sights are on 5668.00, a Fibonacci projection next. Support is at 5516.51, the 20-day EMA.

• Japan's NIKKEI closed lower by 131.67 pts or -0.32% at 40780.7 and the TOPIX ended 16.57 pts lower or -0.57% at 2867.61.
• Elsewhere, in China the SHANGHAI closed lower by 27.483 pts or -0.93% at 2922.45 and the HANG SENG ended 275.55 pts lower or -1.55% at 17524.06.
• Across Europe, Germany's DAX trades higher by 144.71 pts or +0.78% at 18616.84, FTSE 100 higher by 16.75 pts or +0.2% at 8220.59, CAC 40 up 68.74 pts or +0.9% at 7744.54 and Euro Stoxx 50 up 47.68 pts or +0.96% at 5026.79.
• Dow Jones mini up 19 pts or +0.05% at 39713, S&P 500 mini down 2 pts or -0.04% at 5619.5, NASDAQ mini down 14.25 pts or -0.07% at 20606.25.

Time: 09:55 BST

COMMODITIES: Short-Term Weakness in WTI Futures Considered Corrective

A bull cycle in WTI futures remains in play and short-term weakness is considered corrective. The recent breach of $80.11, the May 29 high and a key resistance, strengthened a bullish theme. Note too that $82.24, 76.4% of the Apr 12 - Jun 4 bear leg, has been cleared. Furthermore, moving average studies are in a bull-mode set-up. Sights are on $85.27, the Apr 12 high and a bull trigger. Initial firm support to watch is $79.52, the 50-day EMA. Gold traded higher last week and the yellow metal has traded through resistance at $2387.8, the Jun 7 high. This undermines a recent bearish theme and a clear break would be a bullish development and open the key resistance at $2450.1, the May 20 high. Initial support to watch lies at the 50-day EMA, at 2324.9. A clear break of this average would instead confirm a resumption of the reversal from May 20 and expose $2277.4, May 3 low.

• WTI Crude down $0.6 or -0.72% at $82.53
• Natural Gas up $0 or +0.09% at $2.321
• Gold spot down $19.28 or -0.81% at $2372.97
• Copper down $1.9 or -0.41% at $463.25
• Silver down $0.3 or -0.97% at $30.9179
• Platinum down $16.13 or -1.57% at $1014.02

Time: 09:55 BST

Date	GMT/Local	Impact	Country	Event
08/07/2024	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
08/07/2024	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
08/07/2024	1615/1715		GB	BoE Haskel at ESCoE
08/07/2024	1900/1500	*	US	Consumer Credit
09/07/2024	2301/0001	*	GB	BRC-KPMG Shop Sales Monitor
09/07/2024	0900/1100		EU	ECB's Cipollone at digital euro events by CB of Cyprus
09/07/2024	1000/0600	**	US	NFIB Small Business Optimism Index
09/07/2024	1255/0855	**	US	Redbook Retail Sales Index
09/07/2024	1315/0915		US	Fed Vice Chair Michael Barr
09/07/2024	1400/1000		US	Fed Chair Jerome Powell
09/07/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
09/07/2024	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
09/07/2024	1700/1300	***	US	US Note 03 Year Treasury Auction Result
09/07/2024	1730/1330		US	Fed Governor Michelle Bowman