The euro softened after French President Emmanuel Macron lost control of the National Assembly in Sunday’s legislative election, a major blow that could plunge the country into political paralysis.
Nasdaq futures rose 1.0% in the first session, while S&P 500 futures rose 0.6%. Recently, the duo had a habit of winning in Asia only to fall behind at the London and New York opens.
The S&P 500 fell nearly 6% last week to trade 24% below its January peak. BofA analysts noted that this was the 20th bear market in the past 140 years and that the average peak-to-trough decline was 37.3%.
Investors are hoping it doesn’t match the 289-day average period, as it won’t end until October 2022.
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.1% in tight exchange. The Tokyo Nikkei gained 0.6%, with exporters buoyed by the yen’s sharp decline recently.
News that President Joe Biden is considering lifting some tariffs on China and a possible break in the federal gasoline tax to fight inflation helped boost sentiment.
Yet markets fear that major central banks will be forced to tighten policies so aggressively to control runaway inflation that they will push the world into recession.
NAB strategist Rodrigo Catril said, “Market volatility led the VIX index higher as it posted its strongest weekly close since late April, a theme that outpaces equities along with currency spikes and rate volatility as well as credit spreads.
“At this stage, it is difficult to envisage a reversal of the situation until there is evidence of a material reduction in inflationary pressures.”
Relief looks unlikely this week with UK inflation figures set to show another worrisome reading that could pressure the Bank of England to accelerate its pace of growth.
A host of central bankers are on the agenda this week, led by possibly hawkish testimony from Federal Reserve Chairman Jerome Powell before the House of Representatives on Wednesday and Thursday.
Last week the Fed pledged to be “unconditional” in its commitment to controlling inflation, while Fed Governor Christopher Waller said on Saturday that he would support another 75 basis point hike in July.
This bearish commitment puts the dollar at 104,680, after reaching a high of 105,790 last week.
The euro was slightly lower at $1.0488 after the French election, still uncomfortably close to last week’s low of $1.0357.
The yen remains under heavy pressure, with the Bank of Japan stubbornly sticking to its easing policy, while all other developed countries have adopted tightening measures. The dollar closed at 135.36 yen last week after hitting its highest level since 1998.
Dollar strength has kept gold in a solid sideways pattern for almost a month and it is stuck at $1,838 an ounce. [GOL/]
Oil prices rose slightly on Monday after falling sharply late last week, as concerns over higher energy prices raised the risk of a global recession that would eventually dampen demand. [O/R]
Brent was up 69 cents at $113.81, while U.S. crude added 80 cents to $110.36 a barrel.
