Shares steady, markets unfazed by Japanese politics

Asian and European shares have held steady and the yen firmed as markets shrugged off the Japanese ruling coalition's defeat in upper house weekend elections and turned to focus on this week's US tech earnings and European Central Bank policy meeting.

Investors were also hoping for some progress in trade talks ahead of US President Donald Trump's August 1 tariff deadline, with US Commerce Secretary Howard Lutnick still confident a deal could be reached with the European Union.

There were reports Trump and Chinese leader Xi Jinping were closer to arranging a meeting, though likely not until October at the earliest. European Commission President Ursula von der Leyen will meet Xi on Thursday.

The pan-European benchmark STOXX 600 index was flat, while the UK's blue-chip FTSE 100 was up 0.1 per cent on Monday. The euro was 0.1 per cent higher at $US1.163950.

Market focus was on weekend news out of Japan, where the ruling coalition lost control of the upper house in an election on Sunday, further weakening Prime Minister Shigeru Ishiba's grip on power as a tariff deadline looms.

Ishiba vowed to stay on, which along with a market holiday, limited the reaction. The yen was 0.5 per cent firmer at 148.065 to the dollar and up 0.3 per cent against the euro .

"The loss was within the range of expectations, and actually the outlook was even more pessimistic," said Nissay Research Institute chief economist Tsuyoshi Ueno.

"In terms of negotiations with the US, it is easy to doubt whether a government with such a weak foundation is reliable as a negotiating partner," he added. "For the Bank of Japan, if there is political instability, it will be difficult to raise interest rates, and pressure on the yen will continue."

The BOJ still has a bias to raise rates further, but markets imply little chance of a move until late October.

While the Nikkei was shut, futures traded at 39,885, up on the cash close of 39,819.

Chinese stocks closed at a near three-a-half-year high, led by rare earth and construction sectors, while Hong Kong stocks rose as internet heavyweights rallied following a government rebuke on price wars.

The Shanghai Composite index added 0.7 per cent to 3,559.79, its highest closing since January 2022 and Hong Kong's Hang Seng and China's blue-chip CSI300 index both gained 0.7 per cent.

South Korea's Kospi picked up 0.7 per cent to 3,210.81 after the government reported a slight improvement in exports in June.

S&P 500 futures edged 0.2 per cent higher, while Nasdaq futures were up 0.3 per cent. US indexes are already around record highs in anticipation of more solid quarterly earnings reports.

Markets are gearing up for a host of big tech company results this week, including Google owner Alphabet, Tesla and IBM.

"They are going to be key for sentiment because frankly there's not a lot else to drive things," said Michael Brown, senior research strategist at Pepperstone.

"We saw the banks deliver decent results last week, so you'd certainly be looking for the big tech names to keep up with that to reinforce the bull case (for equities)," he said.

Investors also expect upbeat news for defence groups RTX , Lockheed Martin and General Dynamics. Higher government spending around the globe has seen the S&P 500 aerospace and defence sector rise 30 per cent this year, while defence stocks in Europe have also hit record highs.

In tech news, Microsoft issued an alert about "active attacks" on server software used by government agencies and businesses, urging customers to download security updates.

Elsewhere, euro zone government bond yields eased ahead of euro zone PMI data and the European Central Bank meeting later this week, at which it is expected to leave rates at two per cent following a string of cuts.

"The press conference will likely keep highlighting uncertainty and need to wait for tariff negotiations to conclude before deciding the next step," said analysts at TD Securities in a note. "Similarly, its 'meeting-by-meeting' language would be retained in the release."

The euro dipped 0.5 per cent last week, moving off a recent near-four-year top of $US1.1830. The dollar index was a fraction lower at 98.306.

US Treasury yields fell, leaving the yield on the benchmark 10-year note down 4.5 basis points at 4.286 per cent. Bonds got a boost late last week after Federal Reserve Governor Christopher Waller repeated his call for a rate cut this month.

Most of his colleagues, including Chair Jerome Powell, have argued a pause is warranted to judge the inflationary impact of tariffs and markets imply almost no chance of a move in July. A September cut is put at 61 per cent, rising to 80 per cent for October.

Powell's reticence on rates has drawn the ire of Trump who threatened to fire the Fed chief, before backing down. The spectre of a potential political appointee who would seek to ease policy sharply has investors on edge.

In commodity markets, gold firmed 0.5 per cent to $US3,365 an ounce , with all the recent action in platinum, which last week hit its highest since August 2014.

Oil prices were caught between the prospect of increased supply from OPEC+ and the risk European Union sanctions against Russia over its war in Ukraine could curb its exports.

Brent edged up 0.1 per cent to $US69.32 a barrel.