European stocks took a hit on Monday morning following initial EU Parliament election results and a surprising announcement by French President Emmanuel Macron. The results indicated that far-right and populist parties could have a more significant influence on European policymaking in the coming years. The pan-European Stoxx 600 index fell by 0.8%, with construction stocks leading the losses at 1.7%. The euro also slipped by 0.4% against the U.S. dollar and 0.3% against the British pound.
The French election drama intensified with President Macron declaring snap parliamentary elections for later in the month after facing a significant defeat in the EU vote. This move caused the French CAC 40 index to drop by 2%, with French banking stocks such as Societe Generale and BNP Paribas experiencing sharp declines. The unexpected call for new elections in France shook the market on Monday, with analysts pointing to the impact on Macron’s credibility and pro-EU stance.
The gains made by France’s far-right National Rally party suggest a potential increase in seats in the French parliament. However, analysts believe that there is still a long way to go before they achieve an outright majority of 289 seats. The most likely outcome is predicted to be another hung parliament or coalition for Macron. Investors are now focused on upcoming U.S. inflation data and the next meeting of the U.S. Federal Reserve, following a strong U.S. jobs report that revealed positive hiring and wage growth in May. This data reinforces the belief that the Fed is unlikely to lower interest rates anytime soon, with no rate cuts expected at the upcoming meetings.
In the Asian-Pacific markets, trading was mixed with some markets closed for a holiday, while U.S. stock futures remained steady following a positive week. The uncertainty in the European markets and the implications of the EU election results continue to impact global financial markets as investors await further developments. The unexpected events in France have added a new layer of complexity to the current economic landscape, and all eyes are on how these political changes will influence future policy decisions both in France and across Europe.
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