Week Ahead: FRA40 index to extend recovery?

• France to hold final round of voting on Sunday, July 7th
   
• FRA40 may move slightly higher if far-right National Rally denied clear majority
   
• FRA40 may tumble lower if Le Pen's National Rally secures absolute majority
   
• Thursday's US CPI release could also move the FRA40 index
   
• Wall Street predicts 16% more gains for FRA40 stock index by mid-2025

The French parliamentary elections will see its final round of voting this Sunday, July 7th.

Weeks of political drama and market angst all comes down to this:

Will Marine Le Pen’s National Rally and allies secure the 289 seats needed for an absolute majority in the French National Assembly?

If so, markets fear that could darken the fiscal and economic outlook of the Eurozone’s second-largest economy.

The FRA40 remains over 4% lower since June 9th, when French President Emmanuel Macron called for the snap legislative elections.

Although FRA40 has rebounded so far this month, traders and investors are still primed to react soonest after the second and final round of voting this weekend.

Events Watchlist:

• Sunday, July 7th: French parliamentary elections (final round)

The best immediate-term outcome a.k.a. “goldilocks scenario” for FRA40 bulls (those hoping prices will go higher) would be a hung/gridlocked parliament, where no political side is able to upend existing fiscal policies.

If so, that may well extend FRA40’s recovery so far in July, with the ensuing market relief potentially restoring this stock index back around 7800 or perhaps even higher.

To be clear, any upside gains for the FRA40 may be limited, given that France isn't expected to get over its political turmoil so quickly.

On the other hand, should Le Pen’s National Rally and its allies defy current polls and gain control of the National Assembly, the negative shock may send the FRA40 tumbling towards 7500.

• Thursday, July 11th: US June consumer price index (CPI)

Even as markets digest the French elections fallout, investors and traders will also contend with the influential US inflation data, as measured by the CPI.

The US CPI is forecasted to moderate lower to 3.1% year-on-year (June 2024 vs. June 2023) from May’s 3.3%.

The US inflation data holds major sway over when the Federal Reserve can trigger its first rate cut of this cycle, which markets currently predict an 79% chance of it starting this September.

Over the past 12 months, the US CPI data releases had triggered moves as much as 0.49% up, or 0.77% down in the six hours after its release.

Here’s a comprehensive list of other key economic data and events due next week:

Sunday, July 7

• FRA40 index: French elections – final round

Tuesday, July 9

• AUD: Australia July consumer confidence
• TWN index: Taiwan June external trade
• USD index: Speeches by Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen

Wednesday, July 10

• JPY: Japan June PPI
• CNH: China June CPI and PPI
• NZD: RBNZ rate decision
• GBP: Speeches by BOE Chief Economist Huw Pill, BOE policy maker Catherine Mann
• USD index: Speeches by Fed Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Fed Governor Michelle Bowman

Thursday, July 11

• AUD: Australia July consumer inflation expectations
• UK100 index: UK May monthly GDP, industrial production, trade balance
• US500 index: US June CPI; weekly initial jobless claims
• US30 index: Speeches by Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem

Friday, July 12

• SG20 index: Singapore 2Q GDP
• CN50 index: China June external trade
• US30 index: US July consumer sentiment; July PPI
• US500 index: US earnings season kicks off with JPMorgan, Citigroup, Wells Fargo