French election, global economic woes weigh on Australian markets

Australia’s sharemarket is expected to open lower on Monday as traders await the results of France’s parliamentary elections and consider the latest signs of a cooling global economy.

French President Emmanuel Macron. Picture: AFP

Markets are poised to open lower on Monday as traders fret about the results of the French election and concerns linger about global economic growth.

Futures indicate that the Australian Securities Exchange will open 0.1 per cent lower on Monday, which AMP chief economist Shane Oliver said underscored a jittery market, weighing the threat of eurozone instability against the prospect of imminent rate cuts in the US in response to signs that the world’s largest economy is slowing.

AMP chief economist Shane Oliver.

Dr Oliver said widely watched data from the US indicated a strengthening case for the first of potentially two interest rate cuts this year. “Normally that would be a positive for our market but there’s concern that a slow US economy would be bad news for global growth impacting commodity prices,” he said.

Data released late on Friday showed the world’s biggest economy added 206,000 jobs in June, down from the month prior, while the unemployment rate ticked up, the Labour Department said. Wage gains moderated as well, in a trend that fuelled optimism of a central bank rate cut in the coming months.

The result has cemented a consensus market view that interest rate relief is imminent. The US Federal Reserve has held interest rates at their highest levels in more than two decades to stamp out inflation, which has fuelled a slump in business activity in the manufacturing and services sectors and affected support for President Joe Biden.

French far right party “Reconquete!” vice-president and head of the party list Marion Marechal and French Senator Stephane Ravier during the election campaign. Picture: AFP

Traders have begun to position for when rates could be cut, and data on Wednesday is expected to show a further decrease in inflation – putting the testimony of Federal Reserve chairman Jerome Powell before congress in the spotlight.

Wall Street’s major indices closed in the green on Friday, with the Nasdaq Composite Index surging 0.9 per cent and the S&P 500 Index adding 0.5 per cent.

Signs of easing monetary policy could help bolster Australian confidence that domestic interest rates could follow suit, though most economists expect no relief until next year. The Reserve Bank will next meet in August, when it could raise rates, in contrast to the US.

The more imminent driver of Australian equity markets, Dr Oliver said, would be the results of the French elections. Traders are concerned that the anti-­immigration National Rally party headed by Marine Le Pen and Jordan Bardella has a chance of running the government, which could affect eurozone interest rates.