As DB's Jim Reid writes this morning, tongue-firmly-planted-in-cheek, the biggest shock in Europe on Sunday after a hugely anticipated battle, was that England football team managed to find a way of winning through to the last 16 in what was one of the most woeful and undeserved victories of all time. As this was unfolding the first round of the French elections perhaps delivered a slightly less convincing victory for the far-right than final polls suggested and with other parties now seemingly open to form alliances in the second round, this is likely to further reduce the far-right's chance of an overall majority in parliament. This has helped the Euro to move +0.40% higher overnight to trade at 1.0757 against the dollar, with Euro Stoxx futures climbing +1.2%.
To recap, Le Pen’s National Rally look set to win around 34.2% of the vote, slightly underperforming the final poll of polls which had them at 36.2%. The left-wing NPF coalition are expected to be at around 29% slightly outperforming their final poll of polls of 28.3%. Macron’s party is on track for around 21% also a bit above the final poll of polls of 20.4%.
In terms of what happens next, all those candidates that have an absolute majority of votes and a vote greater than 25% of the electorate are elected. For those not crossing the threshold, the second round this coming Sunday is a run-off between the top two candidates plus any other candidates who polled more than 12.5% of registered voters. Then the one with the most votes is elected.
The left alliance has said it will remove candidates that are in third place which will be problematic to the Far Right’s chances of a majority. Over half the 577 parliamentary seats, a historically very high number, are expected to go to the second round with lots of tactical voting now likely. The deadline for filing papers to accept the opportunity to be on Sunday's second round is at 6pm tomorrow. So we'll have a good idea of tactical alliances then.
Moving on and as it’s the start Q3 today, we’ll shortly be releasing our performance review for the quarter just gone. On the plus side, Q2 saw equities continue to advance, and the S&P 500 hit many more fresh new highs thanks to further gains for the Magnificent 7. But the gains remained narrow, with the equal-weighted S&P 500 actually losing ground in Q2. Meanwhile, sovereign bonds struggled in Q2 as investors generally priced in slower rate cuts, even as the ECB cut for the first time since the pandemic in a June that saw a more dovish pricing for rate expectations. Politics and geopolitics were also back in focus, not least in France where there was a notable selloff after the snap election announcement. See the full report in your inboxes shortly.
In terms of this week, it will be quite a busy one considering there is a US holiday. Thursday is Independence Day which means Friday will likely see a skeleton staffing for the latest employment report with the all-important payrolls number.
Elsewhere on a day-by-day basis the main highlights are as follows. Today brings the US ISM and German CPI and the start of the annual ECB Sintra central bank conference with Lagarde speaking for the first amongst many appearances this week. Tomorrow brings the US JOLTS report, Eurozone CPI and both Powell and Lagarde on a panel at Sintra. Wednesday brings US services ISM, the ADP report, initial jobless claims a day earlier than usual and the trade balance data. The FOMC minutes are also released. We'll also see China's Caixin services PMI and the Eurozone PPI. Thursday sees the UK election and Swiss CPI with Friday seeing German and French IP, Eurozone and Italian retail sales and the Canadian job report to go alongside the US equivalent.
Previewing the US employment report on Friday, DB economists expect headline (+225k forecast vs. +272k previously) and private (+195k vs. +229k) payrolls to be above the +190k and +163k expected by the consensus. The three-month averages are +249k and +206k, respectively. Consensus expects unemployment to stay at 4%. Remember as ever that the JOLTS data (tomorrow) should be a better gauge of how tight the labor market is but as always is a month behind the employment report.
Courtesy of DB, here is a day-by-day calendar of events
Monday July 1
Tuesday July 2
Wednesday July 3
Thursday July 4
Friday July 5
Finally, looking at just the US, Goldman writes that the key economic data releases this week are the ISM manufacturing index on Monday, the JOLTS job openings report on Tuesday, and the employment report on Friday. The minutes from the June FOMC meeting will be released on Wednesday. There are a few speaking engagements from Fed officials this week, including Fed Chair Powell on Tuesday and New York Fed President Williams on Wednesday and Friday.
Monday, July 1
Tuesday, July 2
Wednesday, July 3
Thursday, July 4
Friday, July 5
Source: DB, Goldman, BofA