The rally in global finance markets after centrist French presidential candidate Emmanuel Macron won the first round of voting there lost steam as Asia-Pacific investors focused more on local factors and moved away from the safety of gold and the yen.
S&P 500 futures have been logging near-1% gains throughout the session and gold and U.S. Treasury prices fell.
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But Chinese equities continued their recent slide, which was fueled largely by worries over potential government action to reduce market risk.
"There are no signs that regulators are going to ease the intensity of their campaign, so I think we are in for a period of downward correction, " said Zhang Gang, senior analyst at Central China Securities Co.
The Shanghai Composite Index was down 1.8% in afternoon action and the smaller Shenzhen Composite slid 2.1%.
In currencies, the euro initially rose some 2% versus the dollar and 3% against the yen after the French voting results came in. But by midday at least one-third of those gains had been reversed.
"The risk-on mode due to the [election] result is diminishing," said Kelly Chung, a senior fund manager at Value Partners in Hong Kong.
A pullback in the yen, which has been strong since mid-March, boosted Japanese stocks. The Nikkei Stock Average gained 1.5% to extend last week's rebound from 2017 lows.
While the yen sold off almost 1%, the euro was up at least 1% versus major currencies--though observers attributed some of the common currency's jump to a lack of liquidity. The WSJ Dollar Index, meanwhile, hit a five-month low, falling 0.3%.
Other risk-sensitive assets also notched sizable moves. Gold futures fell some 1% to trade around $1,275 a troy ounce while 10-year Treasury yields jumped to 2.31% from late Friday's 2.23%.
Oil futures, which slid 2% Friday to cap a 7% decline for the week, rose 0.5% in Asia--in part on the weaker dollar.
Overall, the French election results assuaged market fears of final-round victory on May 7 for the nationalist Marine Le Pen, who has expressed a desire to take France out of the European Union and is considered a wild card for financial markets. She finished second in the first round Sunday to Mr. Macron, who is widely expected to win. UBS, for one, cut its probability forecast on a Le Pen win to 25% from 40%.
"With Macron heavily favored in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios--priced in over recent weeks--will recede between now and the runoff," said Timothy Graf, head of macro strategy for Europe, the Middle East and Africa at State Street Global Markets.
Conversely, Ms. Chung sees some risk-on/risk-off fluctuations the next two weeks before the final round. Although the first one went largely as expected, "the Asian equity market will continue to trade on its own forces."
Kosaku Narioka, Shen Hong and Gregor Stuart Hunter contributed to this article.
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(END) Dow Jones Newswires
April 24, 2017 02:11 ET (06:11 GMT)