Crypto News: 5 things to start your day: Europe

Good morning. The euro dips after France's legislative elections on Sunday deliver a shock win for the left. Joe Biden faces a crucial week. FX traders brace for a new era amid the threat of algos. Here's what people are talking about.

The euro fell as France looks headed for political instability after a surprise win by a left-wing coalition — one that includes the Socialists and the far-left France Unbowed. Concern about the impact on the country's strained finances meant the common currency slid as much as 0.4% before trimming losses. With no one political party poised to win a large enough majority to govern on its own, French government bond futures slipped, underperforming German peers. For more on market implications of the vote, please read musings (below) from our macro strategist Mark Cranfield.

And Oliver Crook reports from Paris on Bloomberg Television here.

Joe Biden enters a pivotal week for his teetering reelection campaign. Several influential congressional Democrats said privately on Sunday they want the US president to step aside as the party's White House nominee. The fallout from Biden's June 27 showing against Trump continues to reverberate. The incumbent president has been defiant at calls for him to pull out of the election, repeatedly saying he has no plans to suspend his campaign. But Biden faces fresh challenges as he hosts members of the North Atlantic Treaty Organization in Washington, while members of Congress return to the Capitol after largely being away since the debate.

Traders are being replaced by algos in a new FX era. As machines now handle more than 75% of the trading in some currency markets, the giants of Wall Street are racing to make sure their systems are ready. This new world isn't without its downsides. With machines doing much of the work, trading desks are making a lot less for each currency trade than they did in the past. And without a human to intervene, there's a heightened risk something could go awry, especially in periods of extreme volatility.

Hedge funds piled into short bets against Tesla right before the electric vehicle maker unveiled a set of numbers that triggered a hefty share-price rally. About 18% of the 500-plus hedge funds tracked by data provider Hazeltree had an overall short position on Tesla at the end of June, the highest percentage in more than a year, according to figures shared with Bloomberg. That compares with just under 15% at the end of March. Those contrarian bets now threaten to saddle the hedge funds behind them with losses.

Looking ahead at this week's key events, investors will be squarely focused on Federal Reserve Chair Jerome Powell as he testifies to Congress ahead of US June CPI data due on Thursday. Powell is likely to tell lawmakers that Fed officials need further confirmation inflation is slowing before they're in a position to cut interest rates, even with evidence building of softer growth and employment.

As for today's data calendar for Europe, we have German exports, Swedish house prices and an Israel rate decision, along with euro-area Sentix investor confidence. The Bank of England's Haskel speaks.

This is what's caught our eye over the past 24 hours.

HSBC's hands-on chairman looks to shape legacy with fourth CEO
UK job recruiters say pay for newly hired staff is still rising
Why China's Third Plenum matters for global investors
UK's Reeves to unveil Labour's growth plan in first major speech
Hedge funds reshape Tokyo's exclusive club of bond traders
Iran elects reformist president keen to revive nuclear deal
'It's all hands on deck' as Beryl bears down on Texas coast

France looks headed for a hung parliament with the nation already under scrutiny for having excessive deficit. This points to an extended period where the yield spread between French and German bonds widens.

Investors will be looking back toward the European debt crisis from 2011 through 2012 for a sense of how dysfunctional French debt markets could become. Back then the France-Germany spread spent a prolonged period above 100 basis points, which could be an objective for aggressive traders in the months ahead.

Meanwhile, French sovereign notes can't expect any assistance from US Treasuries, even though yields stateside appear to be on a downward trajectory. Federal Reserve Chair Jerome Powell is poised to fuel more demand for US fixed-income this week in what is set to be a dovish leaning appearance before lawmakers in Washington. Rather than support bonds in France, it is more likely to draw even more flows into Treasuries for the clarity of policy direction. In contrast, France is becoming a new headache for European leaders in Brussels as political gridlock sets in, which is negative for French bonds and equities.

Long-term investors may find comfort that a full-blown European debt crisis looks less likely than the dark days when Greek angst undermined the region's markets. But with France entering a new era of political uncertainty, there is plenty of room for bond vigilantes to extract more pain from the France-Germany yield spread.

Mark Cranfield is a macro strategist for Bloomberg's Markets Live team, based in Singapore