(Bloomberg) — European stocks declined after policy makers signaled they need more evidence that price pressures are easing before considering another interest rate cut.

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The Stoxx Europe 600 benchmark dropped about 0.5%, led by insurers and car makers. France’s CAC 40 erased most of Monday’s gains as the country prepares for a second election round, with the outlook for French assets still uncertain. US equity futures slipped.

While inflation likely slowed further in June, the data won’t provide answers to the European Central Bank’s lingering questions on underlying price pressures, according to Chief Economist Philip Lane. He joined President Christine Lagarde and Vice President Luis de Guindos in signaling that another rate cut in July is unlikely as the ECB collects evidence inflation is heading toward its 2% target.

“We’re expecting inflation to have decreased just a little bit,” said Frederique Carrier, head of investment strategy at RBC Wealth Management. Still, Lagarde “has telegraphed the message very well, so we’re not expecting a change in July but rather in September and December,” she said.

The rally in European stocks has stalled in recent weeks due to political turmoil following a snap election call in France. The first round of the legislative elections narrowed the possible outcomes to two — both of which presage prolonged uncertainty for investors. The second round of voting is scheduled for Sunday.

“We’re expecting that France will be harder to govern, and there will be less reforms, it’s not a positive,” said Carrier.

Meanwhile, the 10-year Treasury yield pared some of Monday’s rise on speculation that a Donald Trump presidency would lead to greater US fiscal deficits and higher inflation. A gauge of the dollar headed higher for a second day.

“The dollar is being supported by the jump in US Treasury yields overnight,” David Forrester, a senior strategist at Credit Agricole CIB, said. “The irony is that it is investor concerns about US fiscal sustainability that is driving US Treasury yields higher.”

Treasuries have been whipsawed this year as traders swung between buying bonds amid signs of cooling US prices and fears of higher-for-longer rates. Yields on five-year securities have climbed more than 20 basis points from a low of about 4.20% just under three weeks ago.

After last week’s debate hurt Joe Biden’s chances of winning reelection, Wall Street strategists — including ones from Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc. — are taking a fresh look at how a Trump victory could play out in the bond market. They’re urging clients to position for sticky inflation and higher long-term yields.

Strategists at JPMorgan Chase & Co., on the other hand, said it’s now time to pocket profits on Treasuries.

Federal Reserve Chair Jerome Powell’s speech at an ECB forum in Portugal may provide more clues on the outlook for policy. The ECB’s Lagarde is also scheduled to speak. Traders will also eye data on US job openings later Tuesday.

Among individual stocks, shares in food services company Sodexo SA fell after it reported revenue for the third quarter that missed estimates. Michelin shares also slipped in Paris, with analysts citing a pre-close call after markets closed on Monday. HelloFresh SE shares jumped after JPMorgan said data indicate stabilization in the key North America meal-kit business.

Asian Shares Gain

Asian shares increased, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific Index hit its highest since late May amid a rally in Hong Kong-listed property and electric vehicle maker shares.

Japan’s equity benchmark inched closer to a record high, supported by gains for financial stocks on prospects of higher lending rates. Domestic 10-year yields continued their rise above 1% on bets that the central bank will raise policy rates.

In China, pessimism about the domestic economy has sparked a surge in demand for government debt. The central bank said it will borrow government bonds from primary dealers, a sign it may be contemplating selling securities to cool down the rally.

The yield on China’s benchmark bonds fell to a record low on Monday as investors worry about the long-term economic growth.

In commodities, 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. Iron ore held near the highest close in about a month. Gold was little changed.

Key events this week:

Eurozone CPI, unemployment, Tuesday
US job openings, Tuesday
Jerome Powell and Christine Lagarde speak at ECB forum in Portugal, Tuesday
China Caixin services PMI, Wednesday
Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
US Fed minutes, ADP employment, ISM Services, factory orders, initial jobless claims, durable goods, Wednesday
Fed’s John Williams speaks, Wednesday
UK general election, Thursday
US Independence Day holiday, Thursday
Eurozone retail sales, Friday
US jobs report, Friday
Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 0.5% as of 9:13 a.m. London time
France’s CAC 40 dropped 0.6%
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.4%
Futures on the Dow Jones Industrial Average fell 0.3%
The MSCI Asia Pacific Index was little changed
The MSCI Emerging Markets Index fell 0.6%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0723
The Japanese yen fell 0.1% to 161.66 per dollar
The offshore yuan was little changed at 7.3063 per dollar
The British pound fell 0.2% to $1.2629

Cryptocurrencies

Bitcoin fell 1.4% to $62,376.28
Ether fell 1% to $3,429.48

Bonds

The yield on 10-year Treasuries declined two basis points to 4.45%
Germany’s 10-year yield declined two basis points to 2.59%
Britain’s 10-year yield declined three basis points to 4.26%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jason Scott, Sagarika Jaisinghani and Aya Wagatsuma.

European Stocks Drop on Rates Outlook, France Poll: Markets Wrap

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