European markets applaud as Macron poised to win French election

LONDON, April 24 (Reuters) – European markets will breathe a collective sigh of relief on Monday as pro-EU centrist Emmanuel Macron looked set to win a second term as president of France, beating rival far-right candidate Marine The pen.

Early projections after Sunday’s second round of elections showed Macron winning around 57-58% of the vote. These estimates are normally accurate but may be refined as official results come in from across the country. Read more

While a Macron victory was the most likely outcome, markets had worried about his relatively narrow lead over Le Pen, who favors nationalizing key industries, cutting taxes and cutting contributions. French to the EU budget.

Join now for FREE unlimited access to Reuters.com

Register

The euro should now get a boost when it starts trading in Asia in a few hours, as French and European markets were expected to open higher, at least initially, on Monday.

“What we have learned over the past two years is that the polls are good but not completely reliable,” said Marchel Alexandrovich, European economist at Saltmarsh Economics in London. “So we will probably have a relief rally, there would have been such an upheaval if Le Pen had won.” Read more

The yield premium demanded by investors to hold French 10-year bonds relative to European benchmark Germany – a key barometer of relative risks – fell to a three-week low around 42 basis points on Friday as investors were anticipating a Macron victory.

French 10-year bond yield spread versus Germany

French stocks closed nearly 2% lower (.FCHI) and the Euro Stoxx 600 closed 1.8% lower (.STOXX) as jitters over rising rates weighed on global equities .

While Le Pen had toned down his anti-euro rhetoric, there was no shortage of moves that would have put Paris on a collision course with EU partners. Read more

So the relief from Sunday’s election results should also be felt across the Eurozone.

Kasper Hense, senior portfolio manager at BlueBay Asset Management, said he expected the yield spread between France and Germany to narrow by 10 basis points, noting that BlueBay had sold short Italian debt, saying the markets were “a little complacent” ahead of the election.

“While in the medium term there will be some pressure on peripheral bonds, the immediate market reaction will be one of relief,” he said.

Macron will become the first French head of state in two decades to win a second term, promising continuity in the bloc’s second-largest economy at a time of heightened uncertainty triggered by war in Ukraine, soaring inflation and the prospect of the rapid withdrawal of central power. bank recovery.

Shares of French banks such as BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA), which rallied after Macron’s strong performance in Wednesday’s key televised election debate, could also register more gains on Monday. .

Other analysts such as Seema Shah, chief strategist at Principle Global Investors, said after the knee-jerk reaction, attention was likely to return quickly to central banks’ response to soaring inflation.

European Central Bank officials are keen to end bond purchases as soon as possible and raise interest rates as early as July, sources familiar with ECB thinking told Reuters. Read more

The focus will also be on the June legislative elections in France. To implement the reforms, the new president will have to secure a parliamentary majority.

This election will have a significant bearing on future policy, so investors with specific French exposure may take time to make up their minds.

“Is the result of this election clear enough to anticipate that the June general elections will give the president a majority that will allow him to implement his pro-business and pro-European policy desired by the markets?” said Frédéric Leroux, member of the Carmignac investment team.

“It seems dangerous at this point to take it for granted.”

Join now for FREE unlimited access to Reuters.com

Register

Reporting by Dhara Ranasinghe and Saikat Chatterjee; Editing by Sujata Rao and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.