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Global Shares Rise as Europe Stabilizes; U.S. Fed Remarks Anticipated

Global shares edged higher on Tuesday as markets in Europe stabilized and traders awaited remarks from several U.S. Federal Reserve officials. Meanwhile, the Australian dollar strengthened after the country’s central bank kept interest rates steady but issued a caution about inflation.

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The STOXX 600 index in Europe rose 0.2%, with France’s benchmark index remaining flat. The spread between German and French bonds narrowed, and the euro held steady.

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This stability comes after a sharp sell-off in French assets last week, triggered by concerns over President Emmanuel Macron’s surprise call for a snap parliamentary vote, potentially leading to a far-right-dominated parliament.

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Markets have settled after last week’s moves in French government bonds, aided by comments from far-right leader Marine Le Pen respecting institutions,” said Lee Hardman, senior FX strategist at MUFG. “However, our broader view remains unchanged, anticipating a higher political risk premium for the euro ahead of the election.”

The euro was last down 0.1% against the dollar at $1.0722, though it was slightly up against the pound.

The yield gap between French and German 10-year government bonds, an indicator of risk premium on French bonds, narrowed to 72 basis points after peaking at 82.34 bps on Friday, the highest since February 2017.

In other French market news, shares in Carrefour (EPA) fell by up to 9.6% following reports that the finance ministry recommended a “record fine” against the supermarket group for its franchise network management.

Earlier, Asian shares rose, following gains on Wall Street on Monday, leaving MSCI’s global share index up 0.14%, close to last week’s record highs.

Optimism about a resilient economy, improving corporate earnings, and potential rate cuts have supported equities, despite concerns that the rally is concentrated in a few mega-cap tech stocks,” noted Jameson Coombs, an economist at Westpac.

U.S. S&P 500 and Nasdaq futures hovered around flat on Tuesday.

Central Banks

The Reserve Bank of Australia started a busy week for central banks by keeping rates at a 12-year high of 4.35%, as expected, but warned of ongoing inflation risks without providing clear guidance on future rate moves. The Australian dollar last traded flat at $0.6609.

“Uncertainty remains a key theme in the RBA’s statement,” commented economists at Commonwealth Bank of Australia. “The Board avoids giving forward guidance due to mixed economic data.”

Central banks in Norway, Britain, and Switzerland are also meeting this week, with expectations for steady rates in Norway and Britain and a 25 basis point cut from the Swiss National Bank.

In the United States, six Federal Reserve officials are scheduled to speak on Tuesday, potentially offering insights into the U.S. interest rate outlook following last week’s policy decision. Futures markets are pricing in approximately 45 basis points of Fed cuts for the remainder of 2024.

U.S. retail sales data is also due later in the day. The U.S. 10-year benchmark Treasury yield held steady at 4.29%, with the dollar strengthening against the euro, the British pound, and the Japanese yen.

Elsewhere, oil prices dipped, with Brent crude futures down 0.46% at $83.87 per barrel, and spot gold fell 0.3% to $2,312 an ounce.

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