Crypto News: 5 things to start your day: Europe

Good morning. Investment banks are re-evaluating what a Trump win may mean for markets. French parties rush to woo voters again. And a record-breaking hurricane drives up oil prices. Here's what people are talking about.

Financial giants from Goldman Sachs to Morgan Stanley and Barclays are taking a fresh look at how a Donald Trump victory in November could play out in the bond market. At Morgan Stanley, strategists including Matthew Hornbach and Guneet Dhingra in a weekend note argued that "now is the time" to wager on long-term interest rates rising relative to short-term ones. Meanwhile, the criminal trial over Trump's attempt to overturn the 2020 election could be delayed for a year or more after the US Supreme Court ruled Monday that presidents have some immunity for their "official" acts. And on the other side, the Democratic National Committee is considering formally nominating Joe Biden as early as mid-July to ensure that the president is on November ballots, while helping to stamp out intra-party chatter of replacing him after last week's poor debate performance.

The European Central Bank doesn't yet have sufficient evidence that inflation threats have passed, President Christine Lagarde said — feeding expectations that officials will take a break from cutting interest rates this month. With the euro-zone job market remaining robust, the ECB has time to assess incoming information, Lagarde said Monday. And Governing Council member Pierre Wunsch would need to be thoroughly convinced that inflation was headed back to the 2% target in order for him to back more than two reductions this year.

Leaders of France's biggest political groups reached out to voters from across the political spectrum as the battle for the second round of the French legislative election turns into a mad scramble for parliamentary seats. This comes after first-round voting narrowed the possible outcomes to two — both of which presage prolonged uncertainty for investors. With by far the biggest share of the vote, Marine Le Pen's National Rally and allies are the only group in a position to now take an absolute majority, and therefore control the next government. But tactical voting and pacts between parties could be enough to prevent that from happening, leading to a hung parliament with the far right the biggest faction.

As the UK prepares to head to the polls on Thursday, the country's financial markets appear to be shedding their recent reputation for volatility. British stocks are near a record high, bond fluctuations have evaporated, and hedging against pound weakness is at a seven-year low. That marks a rethink by investors who imposed penalties on UK assets following the 2016 decision to leave the European Union and then Liz Truss's disastrous 2022 premiership. The backdrop also suggests comfort with the likelihood that the election will hand power to the opposition Labour Party, whose traditional support for higher taxes and trade unions has historically put it at odds with markets. Instead, the hope is Keir Starmer's center-left platform will draw a line under a tumultuous period in British politics. For more on market impact, read Mary Nicola's musings below.

Oil traded near a two-month high on an escalation in tensions in the Middle East and concerns over the rapid start to the Atlantic hurricane season. Brent crude traded near $87 a barrel after rising Monday, while West Texas Intermediate was above $83. The gains came as Hurricane Beryl strengthened to category 5, the highest level on the Saffir-Simpson scale, becoming the strongest storm to ever form in the Atlantic at this time of the year. While in the Middle East, Israel's military said 18 soldiers were injured in a drone attack by Iran-backed Hezbollah, one of them seriously, threatening to move the conflict closer to a full-scale war.

Today we will be watching the euro-zone June CPI estimates and the US May JOLTS job openings, while central bank speakers include the ECB's Lagarde, Guindos, Elderson, Schnabel and the Fed's Powell.

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UK equities would find support should election results line up with expectations, as they could get a temporary boost from easing political uncertainty. But if the country's stocks are to sustain a strong trajectory and regain ground against their peers, the new government will need to deliver on growth.

Valuations for UK shares are cheap relative to US and other major peers in Europe -- whether on a P/E or P/B ratios. The earnings yield combined with dividend yields for the FTSE 100 is as much as 10%. In the wake of the first round of French elections, the equity gauge managed to attract more inflows. Meanwhile, on a year-to-date basis, it has lagged Euro Stoxx 50 and the S&P in US dollar terms.

The problem is that growth has been exceptionally lackluster and the FTSE 100 leans more towards what MSCI defines as cyclical sectors. These often do better in periods of an expansionary business cycle. The Labour Party is pledging to target annual growth of at least 2.5%. The last period of high growth was reached in 2021-22 after the pandemic when the UK economy contracted as much as 10% in 2020.

The IMF projects the country's growth to reach 0.4% in 2024 and 1.5% in 2025. That's more optimistic than forecasts of 0.7% and 1.2%, respectively, based on Bloomberg surveys. Either way, it is a long way off from what the Labour government is discussing with details on how it will reinvigorate growth scant so far. Fears of a widening fiscal deficit or even higher taxes amid the anemic economy continue to cloud the outlook.

Looser monetary policy would be a bonus for stocks, but fiscal policy would need to cooperate to avoid stoking inflation. The composition of UK equity markets suggests growth needs to take precedence to bring them to higher ground.

Mary Nicola is a macro strategist for Bloomberg's Markets Live team and is based in Singapore.