In an unexpected twist, it wasn't the Middle East but Europe that sent shockwaves through global markets this time. The trigger was the preliminary results of the European Parliament elections, which revealed significant political upheaval across the continent.
The advance of far-right parties in these elections led to major losses for President Emmanuel Macron's alliance in France, prompting him to call for a snap election. This political shake-up caused European markets to plummet.
Two major far-right parties in France garnered nearly 40% of the vote for the European Parliament, pushing Macron's party into second place. Consequently, France is now gearing up for a rushed general election at the end of June. In response to the electoral defeat, Macron dissolved the French parliament, and the country is preparing for the first round of elections scheduled for June 30.
European shares took a hit following Macron's announcement of the legislative vote. The yields on France’s 10-year bonds reached their highest level this year, and the nation's top banks saw their stocks tumble. Additionally, the euro weakened against the dollar and the pound.
France, the second-largest economy in Europe after Germany, plays a crucial role in the eurozone economy. The possibility of a new French government could lead to a shift away from Macron’s pro-European, centrist, and pro-Ukrainian stance.
In Germany, the ruling coalition also faced a significant setback in the EU poll. Despite this, Chancellor Olaf Scholz rejected calls for early elections in his own country. The far-right Alternative for Germany (AfD) overtook all three partners in the Berlin coalition, coming in second behind the conservative CDU-CSU opposition.
Ultraconservative and nationalist parties also saw victories or significant gains in Austria, Cyprus, Greece, and the Netherlands.
Investors are also looking ahead to key economic indicators in the U.S. More inflation data is expected on Wednesday, along with the next meeting of the U.S. Federal Reserve. These come on the heels of a stronger-than-expected U.S. jobs report last Friday, which showed an uptick in hiring and wage growth for May.
This data contributes to the narrative that the Federal Reserve is not in a hurry to lower interest rates. Traders do not anticipate the Fed to cut rates in its meeting this week or the following one in July.
This article was written in cooperation with TRADINGVIEW