A look at the day ahead in European and global markets from Rae

Wee

Investors in Europe will begin the week mired in uncertainty

over the global interest rate outlook and the region's political

landscape.

French President Emmanuel Macron rolled the dice on his

political future on Sunday, calling snap legislative elections

for later this month after he was trounced in the European Union

vote by Marine Le Pen's far-right party.

His shock announcement came as the European Parliament took

a shift to the right after a four-day election that concluded on

Sunday, with more eurosceptic nationalists and fewer mainstream

liberals and Greens.

MARKET NERVES

Markets took the news negatively and reacted by knocking the

euro to a one-month low, while EUROSTOXX 50 equity

futures and French bond futures also clocked

losses.

While the common currency and euro area assets have been

largely cushioned by diminished euro-scepticism compared with

elections in the 2010s and early 2020s, the latest developments

could serve as a wake-up call.

The focus for investors when broader European markets open

later on Monday will likely be Italy's 10-year government bond

yield gap over benchmark German paper - often used

as a barometer of risk appetite in the region.

RATES ANGST

In the broader market, traders also continued to reel from

the effects of a blowout U.S. jobs report, ahead of the Federal

Reserve's June policy meeting this week.

The rate cut rally which drove world shares higher last week

quickly ground to a halt and left Asian stocks struggling on

Monday, though trading was thinned with holidays in Australia,

China, Hong Kong and Taiwan.

While it's almost a given that Fed policymakers will dial

back on their projections for three rate cuts this year when

they announce their rate decision on Wednesday, the question is

by how much.

Futures point to about 36 basis points worth of easing

priced in for this year, and chances for a pre-election rate cut

remains a coin toss.

The Fed aside, the Bank of Japan also meets this week, and

expectations are for the central bank to announce a tapering of

its massive bond purchases.

That could offer some reprieve for the yen, which

was still struggling to strengthen past the 157 per dollar level

against a resurgent greenback on Monday.

Key developments that could influence markets on Monday:

- Euro zone Sentix index (June)

- Reopening of 3-month, 6-month and 11-month French

government debt auctions

- Reopening of 3-month and 9-month German government debt

auctions