Eurozone politics cloud the outlook for markets

Tuesday saw Asian equities remain cautious as investors considered the possibility of further political unrest in European markets following right-wing victories in elections and a hurried French ballot that rekindled worries about the bloc's unity.

Investors questioned if the right wing might repeat its victory in the French elections and the extent to which far-right parties may influence the composition of the European Union executive, which caused the euro, French equities, and government debt to plummet.

Following the suggestion in an opinion survey that the far-right National Rally may win the snap election, albeit without a clear majority, bond rates increased throughout Europe, with the difference between French and German debt expanding significantly.

Late on Monday, the left-wing opposition parties in France made a commitment to collaborate and present united candidates.

Over in the US, the markets reacted subduedly to Apple's eagerly anticipated AI strategy, which unifies "Apple Intelligence" technology throughout a range of applications. After trading hours, the shares of the iPhone manufacturer saw a decline from their previous day's gains.

Following a little increase on Monday, SP500 and Nasdaq futures both eased in Asian trade.

Up until now, the market has shown itself to be extraordinarily robust to both the decline in expectations for Federal Reserve rate reduction and the spike in U.S. rates that coincided with Friday's employment news.

In contrast to 50 basis points before to the employment data, futures indicate 38 basis points of Fed easing this year.

At its policy meeting on Wednesday, the Fed is expected to remain unchanged. The main discussion point will be whether the Fed maintains the three rate drops it has projected for this year in its "dot plot" diagrams.

Goldman Sachs analysts wrote in a note, "We expect the dots to show two cuts in 2024, four cuts in 2025, three cuts in 2026 and a slight tick up in the longer-run or neutral rate."

"We think the leadership would prefer a two-cut baseline to retain flexibility, but a one-cut baseline is a possible risk, especially if core CPI surprises to the upside on Wednesday."

(Sources: investing.com, reuters.com)