On Monday, European markets breathed a sigh of relief as pro-EU centrist Emmanuel Macron appeared to be on his way to a second term as France’s president, defeating rival far-right candidate Marine Le Pen.
According to early estimations following Sunday’s run-off election, Macron received roughly 57-58 percent of the vote. Such predictions are usually correct, but they may need to be fine-tuned once official results from throughout the country arrive.
While markets expected Macron to win, they were concerned about his narrow poll lead over Le Pen, who favors nationalizing vital businesses, cutting taxes, and reducing French contributions to the EU budget.
The euro might now see a lift when Asian markets open in a few hours, whereas French and European markets were expected to open lower.
“What we’ve learnt over the last several years is that polls are helpful, but not fully dependable,” Marchel Alexandrovich, European economist at Saltmarsh Economics in London, said. “There will almost certainly be a relief surge because Le Pen’s victory would have been such a huge upset.”
As markets awaited a Macron victory, the yield premium demanded by investors to hold French 10-year bonds versus European benchmark Germany — a key measure of relative risks — plummeted to three-week lows around 42 basis points on Friday.
As rate-hike worries weighed on global stocks, French stocks fell over 2% (.FCHI) and the Euro Stoxx 600 fell 1.8 percent (.STOXX).
While Le Pen’s anti-euro rhetoric has subsided, there was no shortage of proposals that would have put Paris at odds with EU partners.
As a result, relief with Sunday’s election result should be felt throughout the eurozone.
BlueBay Asset Management’s Kasper Hense, a senior portfolio manager, expects the French/German yield difference to narrow by 10 basis points, saying that BlueBay had gone short Italian debt on the belief that markets were “a little complacent” ahead of the election.
“While there may be some pressure on peripheral bonds in the medium term, the immediate market reaction will be one of relief,” he said.
Macron will become the first French president in two decades to win re-election, ensuring stability in the EU’s second-largest economy at a time when the war in Ukraine, rising inflation, and the likelihood of a quick withdrawal of central bank support have heightened uncertainty.
BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA), and Crédit Agricole (CAGR.PA), all rose following Macron’s good showing during Wednesday’s major TV election discussion, could see further gains on Monday.
Other analysts, like as Seema Shah, chief strategist at Principle Global Investors, believe that emphasis will rapidly shift back to central banks’ response to surging inflation following the knee-jerk reaction.
Officials at the European Central Bank are eager to cease bond purchases as soon as possible and hike interest rates as soon as July, according to sources familiar with the bank’s thinking.
The focus will also move to the French parliamentary elections in June. The future president will require a parliamentary majority to undertake reforms.
Because the outcome of that election will have a substantial impact on future policies, investors with specific French exposure should wait before making a decision.
“Is the outcome of this election obvious enough to predict that the President will win a majority in the June legislative elections, allowing him to execute the pro-business and pro-European policies that the markets demand?” a member of Carmignac’s investing team, Frederic Leroux, said
“It seems dangerous at this stage to take it for granted.”
France Election I Emmanuel Macron addresses supporters after a victorious re-election as president
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