Asian Markets Rise Amid U.S. Rate Cut Hopes and French Political Shifts

Asian stocks showed slight gains on Monday as confidence grew regarding a potential U.S. rate cut in September. In France, political uncertainty arose from elections, with a leftist alliance leading, preventing the far-right National Rally from governing. Investors remain cautious about the potential rollback of President Macron's reforms.

Asian stocks inched higher on Monday as investors grew more confident about a September U.S. rate cut, while the euro grappled with political uncertainty following French elections that pointed to a hung parliament. In France, a leftist alliance unexpectedly took the top spot ahead of the far right, a major upset poised to prevent Marine Le Pen's National Rally from running the government.

Investors felt a sense of relief at the far-right's setback, although concerns remain over the left's plans to reverse many of President Emmanuel Macron's pro-market reforms. 'It will be difficult for France to form a government, and the most likely outcome is now some arrangement between parts of the left and Macron,' said Holger Schmiedling, chief economist at Berenberg.

This potential coalition could mean reversing some reforms rather than enacting new ones,' Schmiedling added. 'The outcome is less bad than it could have been; it could have been much worse.' The single currency dipped fractionally to $1.0828, having been as high as $1.0843 on Friday following a soft U.S. jobs report. The euro also fell 0.25% against the Swiss franc to 0.9680 francs but held steady against the yen at 174.00 yen.

The dollar stood at 160.70 yen, slightly off its recent high of 161.86. EUROSTOXX 50 futures and FTSE futures both edged up 0.1%. French 10-year bond futures dipped 23 ticks, or a modest 0.21%. Equities were buoyed by hopes of U.S. policy easing, with MSCI's broadest index of Asia-Pacific shares outside Japan rising 0.1% after reaching a two-year high last week. Japan's Nikkei index firmed 0.2%, nearing record highs, while Chinese blue-chip stocks eased 0.4% amidst rising bond yields.

S&P 500 futures and Nasdaq futures both fell by 0.1%. With earnings season kicking off this week, Citigroup, JP Morgan, and Wells Fargo are all set to report. Investors viewed Friday's jobs report as supporting a September rate cut from the Federal Reserve, with futures indicating a 77% chance of such a move. Markets have priced in 53 basis points of easing for this year, up from around 40 basis points a month ago.

Three-month payroll growth fell sharply to +177k from previously reported +249k, driven by downward revisions of 111k,' Goldman Sachs analysts noted. 'We expect the FOMC to deliver its first cut in September, followed by quarterly cuts to a terminal rate of 3.25-3.5%.' Treasuries rallied on the report, with 10-year yields down to 4.30% from a high of 4.4930% earlier last week.

Fed Chair Jerome Powell will offer his outlook when he appears before Congress on Tuesday and Wednesday, while several other Fed officials are speaking this week. The main economic event will be the U.S. consumer price report on Thursday, where headline inflation is expected to slow to 3.1% from 3.3% and the core steady at 3.4%.

German inflation data will be released the same day, while China will publish its consumer prices and trade figures this week. In commodity markets, gold remained near one-month highs at $2,385 per ounce, while oil prices slipped as the market awaited the impact of Hurricane Beryl on Gulf of Mexico supplies. Brent eased 14 cents to $86.40 per barrel, while U.S. crude fell 29 cents to $82.87 per barrel.

(With inputs from agencies.)