A look at the day ahead in U.S. and global markets from Mike

Dolan

An event-packed but shortened week stateside kicks off the

second half of 2024, with European markets rallying on Monday as

the first round of French assembly elections points to a hung

parliament and policy gridlock.

Although French far right coalition parties got the largest

share of the vote at Sunday's first of two polls as expected,

the percentage was shy of last minute opinion polls and it group

looks short of an overall majority when the process is over.

In part due to the high turnout, next Sunday's second phase

of voting will see more than half the parliamentary seats

contested by three candidates - which means tactical voting to

shut out the far right will likely affect their overall tally.

That suggests a outcome of messy parliamentary maths that

stymies significant policy initiatives, not to mention another

three years of 'co-habitation' with the powerful Presidency.

Viewed against 'worst case' concerns of a wave of unfunded

tax cuts from the former National Front and its allies, not to

mention tense battles with Brussels, investors breathed a

partial sigh of relief that it all looks muddier than that.

The benchmark CAC40 French stock index jumped more

than 2% on Monday - clawing back losses seen since the snap

election announcement almost a month ago and back positive for

the year to date. The risk premium on French 10-year government

bonds over German equivalents fell back to as low as 72 basis

points, from 12-year peaks of about 85bp on Friday.

The euro jumped more than half a cent against the

dollar, to its best levels in more than two weeks.

That's knocked the dollar back across the board -

with the French results perhaps delaying the reaction to the

soft U.S. PCE inflation report for May. That saw U.S. core

inflation come in at slightly less than the 0.1% expected for

the month and saw the annual core rate drop to 2.6% for the

first time in three years.

German states' inflation numbers for June point to further

easing of national price pressures too.

Still, Federal Reserve officials seem in no mind to take one

month's return to disinflation at face value and several have

insisted they seen to see months of such data to be convinced

it's safe to cut interest rates.

The European Central Bank has already cut rates this year

and looks set to move at least once more before the Fed makes

its first move.

ECB President Christine Lagarde speaks at the ECB's annual

forum in Sintra, Portugal later today and will be joined by Fed

chair Jerome Powell there on Tuesday.

A hawkish message was sent by the Bank for International

Settlements on Sunday, warning that rising government debt

levels amid a number of major elections this year could roil

global financial markets.

"They (governments) must cut short the rise in public debt

and accept that interest rates may not return to the

pre-pandemic ultra low levels," he said. "We need a solid

foundation to build upon", said BIS General Manager Agustin

Carstens.

Otherwise, the U.S. week is broken up by the Independence

Day holiday on Thursday but is packed with big labor market data

- some of which is frontloaded a day early because of the

holiday. The JOLTs job openings release is due tomorrow, for

example, and the weekly jobless report on Wednesday - but the

national payrolls report will be on Friday as usual.

Elsewhere, the UK holds its general election while the U.S.

is away on Thursday.

Sterling and UK stocks were firmer on Monday,

with a opinion polls still pointing to a huge majority of more

than 200 seats for the opposition Labour Party.

-- RAnd up South Africa's President Cyril Ramaphosa

announced on Sunday a cabinet of the country's government of

national unity following weeks of protracted and at times

acrimonious negotiations. Ramaphosa retained the African

National Congress' Enoch Godongwana as finance minister and

appointed former opposition leader John Steenhuisen as minister

of agriculture, bringing the Democratic Alliance and other

parties into his new coalition cabinet.

Japan's yen, meantime, continued to flirt with

38-year lows above 161 per dollar - with no sign yet of any

official intervention.

-- mixed bag

U.S. stock futures and bond yields were higher ahead of

Monday's open.

-- in US politics, the rumbling around repacing Biden after

the TV debate seems to have quietened and there appears at least

to be a fresh pushback to get behind Joe - with time

BlackRock ( BLK ) has agreed to buy UK data firm Preqin for

2.55 billion pounds ($3.23 billion) in cash in a further

expansion by the world's biggest asset management company into

alternative investments.BlackRock, which manages more than $10

trillion, is seeking to capitalise on a boom in demand from

investors for alternative assets, which includes anything from

private equity to infrastructure. In January BlackRock announced

a deal to buy Global Infrastructure Partners (GIP) for $12.5

billion, while other investment firms have also struck recent

deals.

Key developments that should provide more direction to U.S.

markets later on Monday:

* US June manufacturing surveys from ISM and S&P Global

* New York Federal Reserve President John Williams speaks;

European Central Bank President Christine Lagarde speaks at

ECB's annual forum in Sintra, Portugal

* US Treasury sells 3-, 6-month bills

(By Mike Dolan, editing by XXXX [email protected])