Euro Rises Post-French Vote; Stocks to Drop Monday: Markets Wrap

(Bloomberg) — Stocks are set to start the week lower as investors weigh the impact of more aggressive interest rate increases on the economy and earnings. The euro gained after Emmanuel Macron’s win in the French election removed a key risk for markets.

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Futures fell in Japan and earlier in Hong Kong. U.S. stocks capped the longest run of weekly losses since January, while the Nasdaq 100 is poised for the worst month since 2008 as traders ratchet up expectations for steep policy tightening to tame inflation.

Macron defeated far-right leader Marine Le Pen in the French presidential election on a pro-business platform, bolstering the euro. The dollar was mixed against other major currencies. A dollar gauge closed higher Friday.

Investors will also be keeping a close watch on any policy measures from China as Chinese assets are under pressure, with the yuan dropping to a one-year low Friday. The nation’s Covid-zero policy amid a Covid outbreak is also weighing on sentiment.

Traders have increased bets on the Federal Reserve being even more assertive on tightening policy. Chair Jerome Powell endorsed a 50 basis-point increase next month and at least one more such move, outlining his most bold approach yet to reining in surging prices. Stronger tightening signals from the European Central Bank are also undermining risk appetite.

“There has been little to avert the investor pessimism as inflation and interest rate expectations start to bite,” Geir Lode, head of global equities at Federated Hermes Ltd., said in a note. “In particular due to the uncertainty of the macro environment, expectations are low with regard to forward estimates and guidance, building on lowered expectations from the previous quarter.”

The war in Ukraine continues to provide an uncertain backdrop for the markets. U.S. Secretary of State Antony Blinken and Defense Secretary Lloyd Austin arrived in Kyiv for talks as Russia’s war on Ukraine enters its third month.

Some of the main moves in markets:

Stocks

Currencies

The Japanese yen fell 0.1% to 128.60 per dollar
The offshore yuan was at 6.5262 per dollar
The Bloomberg Dollar Spot Index rose 0.7% Friday
The euro rose 0.2% to $1.0806

Bonds

Commodities

West Texas Intermediate crude fell 1.7% to $102.07 a barrel
Gold fell 1% to $1,931.60 an ounce