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Market Outlook: New Records and Political Surprises
Wall Street starts the week on a high note, with stocks reaching new records. Investors prepare for another earnings season and upcoming testimonies from Federal Reserve Chair Jerome Powell. Meanwhile, France faces political turbulence after surprise election results left the country's parliament without a clear majority.
U.S. Treasuries and Dollar Response
U.S. Treasuries appeared relaxed, while the dollar weakened following a June employment report indicating a cooling labor market. This has increased speculation about potential Fed rate cuts later this year. Powell will testify before Congress this week, though he's unlikely to reveal much beyond his recent comments in Portugal.
Corporate Earnings Season Begins
Focus in the U.S. will shift toward second-quarter corporate earnings, starting with major banks reporting on Friday. This may divert some attention from Powell's testimony.
French Election Results
In Europe, Sunday's second-round French election results were unexpected, with Marine Le Pen's far-right party failing to secure a majority. Tactical voting pushed them into third place, behind a left-wing alliance and President Emmanuel Macron's centrist group. The resulting political gridlock has eased fiscal concerns on both sides.
However, the fragmented parliament raises questions about next year's budget amidst EU pressure to reduce deficits. French stocks benefited from the news, rising nearly 1%. Government debt yields dropped, and the risk premium over German bonds narrowed slightly. The euro maintained gains against a weaker dollar.
British Political Developments
In the UK, the Labour Party celebrated a landslide victory in Thursday's election, securing a significant majority in parliament. This buoyed the pound to its highest level since mid-June. Finance Minister Rachel Reeves outlined plans to boost economic growth through infrastructure projects and private investment, while Foreign Minister David Lammy discussed resetting relations with the EU.
U.S. Political Landscape
The U.S. political scene remains complex. Despite some calls within the Democratic Party for President Joe Biden to step down, he retains significant support and is performing well in key states.
Market Movements
U.S. stock futures remained steady near record highs, with 10-year Treasury yields around 4.3%. Crude oil prices started the week on a sharp decline. Globally, stock markets showed general optimism, pushing MSCI's all-country index to a new all-time high. The notable exception was China, where stock indexes continued to fall, marking a downturn for the year.
China's Economic Measures
China's central bank announced the introduction of temporary bond repurchase agreements to improve market operations and maintain banking liquidity, aiming to stabilize the struggling stock market.
Upcoming Events
Key events to watch that could influence U.S. markets include the June employment trends, May consumer credit data, a speech by Bank of England MPC member Jonathan Haskel, and U.S. Treasury auctions for 3- and 6-month bills.
