MNI US OPEN - Macron Gambles on Shock French Election

NEWS

FRANCE (MNI): Macron Gambles on Snap Legislative Election

French President Emmanuel Macron's decision to dissolve the National Assembly and call snap legislative elections following the poor performance from his centrist Renaissance-led alliance in the European Parliament election is a significant gamble. In the EP election, Renaissance and its allies came in a distant second with 14.6% support, well behind the right-wing nationalist Rassembelement National (National Rally, RN) of Marine Le Pen on 31.5%. Even prior to the calling of the snap vote, Macron's group did not hold a majority in the National Assembly, with PM Gabriel Attal reliant on the backing of other parties to pass legislation.

EUROPE (NYT): EP Elections Reward Hard-Line Nationalists

Voters in the 27 European Union member states sent a stern warning to mainstream political powers, wreaking havoc on French and, to a lesser degree, German politics and rewarding hard-line nationalist parties in a number of countries. Even so, the radical right-wing wave dreaded by the European political establishment did not fully materialize; the center of European Union politics held.

GERMANY (BBG): Scholz Heading for Another Election Debacle in Eastern Germany

German Chancellor Olaf Scholz’s ruling coalition is on course for another drubbing when three eastern German regions where the far-right Alternative for Germany is the strongest party hold elections in September. As well as slumping to their worst ever result in a national vote on 13.9%, Scholz’s Social Democrats were hammered in the former communist east in Sunday’s European Parliament election. Voters in Saxony and Thuringia go to the polls on Sept. 1, before Brandenburg — the region that surrounds the capital Berlin — holds its election three weeks later.

ITALY (BBG): Italy’s Meloni Says Government ‘Emboldened’ by EU Vote Victory

Premier Giorgia Meloni projected optimism after winning the European vote in Italy, vowing Rome would play a “fundamental” role in the bloc while calling on the EU to reflect on the low turnout seen across the union. Meloni heads up a coalition of her own Brothers of Italy, Matteo Salvini’s League and Antonio Tajani’s Forza Italia, the party founded by the late Silvio Berlusconi. While her party surged in the polls, with a projected 28.8% of the vote, her two coalition partners didn’t, failing to break through the 10% threshold. The opposition also surged, with the left-wing Democratic Party projected to be runner-up with about 24% of the vote.

US/MIDDLE EAST (BBG): Blinken Returns to Mideast as US Presses Stalled Cease-Fire Plan

Secretary of State Antony Blinken lands in Egypt on Monday and is expected to meet President Abdel Fattah El-Sisi as the US attempts to push a last-ditch cease-fire proposal publicly endorsed by President Joe Biden but brushed off so far by both Israel and Hamas. Blinken is first set to meet senior officials in Egypt, which along with Qatar has been helping mediate between Israel and Hamas. Blinken then travels to Israel where he is expected to meet Prime Minister Benjamin Netanyahu, whose government is under renewed pressure after retired general Benny Gantz resigned from the emergency war cabinet.

ECB (BBG): ECB Must Wait for September to Gauge Next Rate Cut, Kazimir Says

The European Central Bank’s September policy meeting will be key for officials to determine whether to cut interest rates again, according to Government Council member Peter Kazimir. The Slovak central bank chief — in an op-ed published on Monday — implicitly ruled out July, saying that he and his colleagues will need more data and time to assess the price risks to the economy. “We can afford to enjoy the summer without hurrying into the decision — we don’t need to rush and there’s no reason to rush,” he said. “September will be a pivotal month,” he said, referencing new forecasts due then.

ECB (BBG): ECB’s Next Steps Depend on Inflation, Economy, Kazaks Tells TV3

The European Central Bank’s next policy decisions will depend on how the economy and inflation will develop, Governing Council member Martins Kazaks said in an interview with Latvia’s TV3. Cautions that “inflation has a tendency to return”. “The financial markets at the moment are pricing in one to two more cuts this year — we will see”. “The good news is that we are starting to climb down” from the rate peak.

BOJ (MNI): BOJ Looks at Trimming JGB Buys, Rate on Hold

The Bank of Japan is likely keep its policy interest rate at a range of zero percent to +0.1% at its upcoming meeting, as it continues to monitor consumption with a view to a possible hike in coming months, though it could act this week to reduce its monthly government bond purchases from around JPY6 trillion. The BOJ is concerned that some investors are staying away from longer-dated JGBs amid uncertainty over the outlook for its bond-buying. Any reduction in purchases will be accompanied by a pledge to stay in the market and to ensure there is no spike in long-end yields, which in effect could equate to yield-curve control.

JAPAN (MNI): Japan May Sentiment Index Drops; Clouds Spending

Sentiment amongst Japan's economy watchers fell for a third consecutive month in May, data released by the Cabinet Office showed Monday, with all the sub-indexes linked to households, businesses and the labor market fell. An official at the Cabinet Office told reporters that the number of respondents who voiced concern over the impact of the weak yen rose -- a view that in part undermines the Bank of Japan’s view that private consumption is resilient and the consumption will not derail from a recovery trend.

CHINA/NEW ZEALAND (BBG): Chinese Premier Li Qiang to Visit New Zealand This Week

Chinese Premier Li Qiang will visit New Zealand later this week amid rising tensions between Beijing and its western trading partners. The visit, announced by New Zealand Prime Minister Christopher Luxon Monday in Wellington, marks 10 years since the conclusion of the New Zealand China Comprehensive Strategic Partnership and will be the first by a Chinese premier since 2017. The exact dates of the visit were not disclosed.

RUSSIA (BBG): Putin Set for Visits to Security Partners North Korea, Vietnam

Russian President Vladimir Putin is set to visit North Korea and Vietnam soon, taking rare trips to Moscow’s traditional security partners as he seeks help for his grinding war on Ukraine. Vedomosti reported Monday on these two trips that it said would take place in the coming weeks, citing a diplomat it did not identify. The Russian newspaper did not give firm dates for the visits. It also cited Russia’s ambassador to North Korea Alexander Matsegora as saying the trip is now being “actively prepared.” Putin’s trip to North Korea would be his first since July 2000.

DATA

UK DATA (MNI): KPMG-REC Report on Jobs Shows Wage Growth Remains Sticky

The KPMG-REC Report on Jobs showed that the the labour market continues to soften, although at a slower pace than in April with wage growth remaining sticky. Permanent and temporary placements continue to remain below the breakeven 50 level. However, the press release notes that the decline in permanent placements have eased for a second consecutive month, with the index at its highest level since May 2023. Temporary placements also saw a slower reduction, with the index at its highest level since January.

NORWAY DATA (MNI): Core Inflation Firmer Than Expected on Sticky Services and Food Prices

• NORWAY MAY CPI -0.1% M/M, +3% Y/Y
• NORWAY MAY CORE CPI +0.5% M/M, +4.1% Y/Y

Norwegian May CPI-ATE was firmer-than-expected at 4.1% Y/Y (vs 3.9% cons, 4.4%prior). This means that the rounded forecast error with the Norges Bank's March MPR projections remains steady at -0.1pp (Norges Bank forecasted 4.2% Y/Y). While still below the Norges Bank's March MPR forecast, we expect this data to contribute to the Norges Bank maintaining a hawkishly cautious tone at the June 20 meeting, where rates will likely be held at 4.50%. The CPI-ATE strength came as services excluding rent accelerated to 4.9% Y/Y (vs 4.5% prior) and food prices remained strong at 5.4% Y/Y (vs 6.8% prior). The latter saw a 0.9% M/M reading.

ITALY APR INDUSTRIAL PRODUCTION -1.0% M/M ; -2.9% WDA Y/Y (MNI)

JAPAN Q1 GDP UNREV -0.5% Q/Q; PRELIM -0.5%; MEDIAN -0.5% (MNI)
JAPAN Q1 ANNUALIZED GDP REV -1.8%; PRELIM -2.0%; MEDIAN -2.1% (MNI)
JAPAN Q1 PRIVATE CONSUMPTION -0.7% VS. -0.7%; MEDIAN -0.7% (MNI)
JAPAN Q1 CAPEX REV -0.4% Q/Q; PRELIM -0.8%; MEDIAN -0.6% (MNI)

FOREX: Renewed Political Risk Premium Presses EUR/GBP to Multi-year Low

• European markets have been left reeling by a bruising set of European Parliamentary election results, with right-wing parties across the continent surging ahead in the polls and triggering a wholly unexpected election call from the French President Macron. As such, markets trade with a heavy dose of political risk premium, tipping yields to rise across Europe and weighing on the single currency.  
• EUR/GBP has cracked lower, breaking support to print a new multi-year low at 0.8453 and putting EUR/USD on course for a test of last month's low. The pair's two-day decline now amounts to close to 150 pips after Friday's solid NFP release, opening 1.0724 as the next key support.
• Front-end vols are well bid ahead of a tricky week to navigate for markets. The Fed and BoJ decisions as well as US CPI should keep markets busy as curves trade steeper in the US and Fed pricing for 2024 remains toward the tighter end of the series.
• Antipodean currencies outperform, with AUD, NZD firming. CFTC CoT data from Friday shows markets built the NZD net position in the latest week, swinging to a net long of 13.2% of OI, second only to GBP in G10 currencies. 
• The calendar ahead is typically light for a Monday, with just the NY Fed's inflation expectations survey due. As a result, the central bank speaker slate should be of more consequence, with ECB's Holzmann and Nagel appearing later today. Holzmann was reportedly the only dissenter at the ECB's decision to cut rates last week, meaning his appearance today could carry more weight.

EGBS: OATs Lead Political Uncertainty-Driven Selloff

OATs lead the sell-off in EGBs this morning, following President Macron’s decision to dissolve the National Assembly and call snap legislative elections following poor domestic results in the EU parliamentary elections.

• The resulting political uncertainty has spilled over across EGB markets, with high beta peripheral paper also underperforming.
• OAT futures are -78 ticks at 123.71, closely followed by BTP futures, which are -70 ticks at 115.52.
• Bund futures have seen a more modest reaction, though remain 29 ticks lower at 129.93, with a technical bear trend still intact.
• ECB speakers since Friday’s close (Lagarde, Nagel, Holzmann, Kazaks and Kazimir) have continued to underscore the Bank’s cautious/data-dependent approach when it comes to the next move for rates.
• Cash curves across the region have bear steepened, while the 10-year OAT/Bund spread trades close to its widest level since January, around 5bp wider today.
• The 10-year BTP/Bund spread has also widened towards 140bps, registering the widest level seen since late April (+5.5bp on the day).
• The remainder of today’s regional data calendar is limited, with wider market focus on Wednesday’s US CPI/Fed decision and the BoJ on Friday.

GILTS: No Real Bounce, Spill Over From EGBs Keeps the Pressure On

Gilts trade a little above session lows, with EU-election driven pressure for EGBs spilling over early this week.

• A reminder that French snap elections have been called after a particularly poor vote count for President Macron’s party.
• Futures show as low as 96.36, breaking Friday’s low. Bears now eye the June 3 low (96.26), with any break there set to expose key support at the May 29 low (95.33).
• Yields are ~4bp higher across the curve, in a parallel shift.
• SONIA futures are flat to -5.0, just off session lows.
• BoE-dated OIS last shows ~25bp of cuts through the November MPC, although has shown slightly less than full pricing of a 25bp cut over the horizon on several occasions this morning.
• ~32bp of cuts are showing through year end vs. ~33bp at Friday’s close.
• External factors continue to drive the short end, after U.S. NFPs and ECB matters hawkishly impacted pricing late last week.
• Politics and the latest REC report on jobs have provided the domestic areas of interest, see earlier comments for further colour there.
• The BoE will sell GBP800mn of short maturity gilts from its APF holdings later today.
• Tomorrow’s UK labour market report presents the next domestic focal point. Expect our full preview of that release to cross this afternoon.

EQUITIES: Recent Weakness in Eurostoxx 50 Futures Appears Technically Corrective

Recent weakness in Eurostoxx 50 futures appears to have been a correction. The recovery from 4947.00, the Jun 4 low, signals the end of the corrective cycle and attention is on key resistance and the bull trigger at 5110.00, the May 16 high. Clearance of this level would confirm a resumption of the uptrend. On the downside, a break of 4947.00 would instead expose 4894.90, a Fibonacci retracement. The uptrend in S&P E-Minis remains intact and last week’s gains reinforce this set-up. The contract has traded above 5368.25, the May 23 high and bull trigger. The move confirms a resumption of the uptrend. A continuation higher would signal scope for a climb towards the 5400.00 handle next. On the downside, key short-term support has been defined at 5205.50, the May 31 low. Clearance of this level is required to signal a short-term reversal.

• Japan's NIKKEI closed higher by 354.23 pts or +0.92% at 39038.16 and the TOPIX ended 27.46 pts higher or +1% at 2782.49.
• Across Europe, Germany's DAX trades lower by 128.61 pts or -0.69% at 18419.2, FTSE 100 lower by 28.85 pts or -0.35% at 8215.43, CAC 40 down 138.82 pts or -1.73% at 7854.41 and Euro Stoxx 50 down 56.61 pts or -1.12% at 4991.27.
• Dow Jones mini down 81 pts or -0.21% at 38786, S&P 500 mini down 8.5 pts or -0.16% at 5348, NASDAQ mini down 26.25 pts or -0.14% at 19012.

Time: 09:50 BST

COMMODITIES: Sharp Sell-Off in Gold Friday Reinforces Short-Term Bearish Theme

Despite the latest recovery in WTI futures, a bearish theme remains in play. Price has recently cleared $73.24, the 76.4% retracement of the Dec 13 - Apr 12 bull leg. This reinforces the current bearish theme and signals scope for a continuation. Note that moving average studies are in a bear-mode position too, highlighting a downtrend. Sights are on $71.33 next, the Feb 5 low. Initial resistance is at $77.10, the 20-day EMA. A sharp sell-off in Gold Friday reinforces a short-term bearish theme. The yellow metal has cleared support around the 50-day EMA, at 2313.6. The break confirms a resumption of the reversal that started May 20 and signals scope for a deeper correction near-term. This has opened $2277.4, the May 3 low. Clearance of this price point would strengthen a bearish theme. Initial resistance to watch is $2387. 8, Friday’s high.

• WTI Crude up $0.17 or +0.23% at $75.74
• Natural Gas up $0.06 or +1.95% at $2.968
• Gold spot up $2.99 or +0.13% at $2296.01
• Copper up $0.5 or +0.11% at $447.9
• Silver up $0.55 or +1.9% at $29.6665
• Platinum up $4.43 or +0.46% at $973.83

Time: 09:50 BST