France’s Macron beats Le Pen to win second term

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LONDON — Following is market reaction to French President Emmanuel Macron’s victory over rival Marine Le Pen by a comfortable margin, according to exit polls, in Sunday’s election. nL1N2WM021]

Market reaction:

Eurozone bond yields, particularly yields on French government debt are likely to dip on Monday as markets are relieved at Macron’s win. Yields on benchmark 10-year debt which hit more than seven-year highs last week may dip by 5-7 bps in European trading on Monday.

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A widely watched spread between French and German government , a gauge for French political risks, is likely to tighten. It hit an April 2020 high of 54 bps earlier this month.

The euro is likely to strengthen. It closed Friday at $1.08095, not far from a two-year low of $1.0758 on April. 14

Here is a summary of analyst comments:

HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG, LONDON:

“Based on the exit polls we can’t say how big his (Macron’s) margin will be, but the polls suggest a convincing win and that gives him momentum for the parliamentary elections.

“He has a chance of winning those elections and getting close to a majority, so he should be able to install a government that is friendly even it has to rely on support.

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“For markets, this is probably only a modest sigh of relief as the latest opinion polls had already suggested a win for Macron. But what we can say is that we have been spared the nightmare scenario.”

KASPAR HENSE, SENIOR PORTFOLIO MANAGER, BLUEBAY ASSET MANAGEMENT, LONDON:

“We had thought the markets were a bit complacent going into the elections and we had gone short on Italian debt as a result. While over the medium term there will be some pressure on peripheral bonds, the immediate market reaction will be one of relief on the Macron news.

“We could see OAT bond yields move 10 bps tighter and German bund-swaps spreads also narrow 5 bps. The euro should move a bit higher but in the medium term as the short term risk implication has ebbed. Macron now has some more time to put together more EU reforms namely on energy and more cohesiveness on key sectors such as energy and defense.”

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MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:

“What we have learned from the last couple of years is that the polls are good but not complete reliable. So, we are likely to get a relief rally, it would have been such a big upset if Le Pen had won.

“On the economy, I think it is interesting as Macron cannot run again so his legacy will be set in the next five years. So, he is likely to push for more reforms as he won’t be standing in five years’ time. There is an opportunity for him to push his agenda, so perhaps he can be braver.

“The scale of the victory is likely to be lower than in 2017 but it is a convincing win for an incumbent.”

SEEMA SHAH, CHIEF STRATEGIST, PRINCIPLE GLOBAL INVESTORS, LONDON:

“There’s going to be a bit of relief. There has been a lot of trust in the polls, so I don’t expect a huge reaction but the alternative would have been a huge reaction across France and Europe too.

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“For French stocks, we could see a small relief rally too. But after the knee jerk reaction, the focus will turn to the ECB and the rate outlook and that will be key driver for European stocks and bonds.”

MARLENE LARUELLE, DIRECTOR, INSTITUTE FOR EUROPEAN, RUSSIAN AND EURASIAN STUDIES, GEORGE WASHINGTON UNIVERSITY, WASHINGTON:

“Macron’s victory is good news for Europe, as Macron is a big defender of European unity, the need for a unified EU foreign policy and defense, and is playing a key role in Europe’s diplomacy in the current war in Ukraine.

“Le Pen’s election would have created a collision course with the EU and triggered a political crisis in France, and potentially in Europe, where she would have had few supporters, except Victor Orban.

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“Yet, Macron’s victory should be read with caveats: Le Pen got her best score ever, and the level of abstention of young people is at more than 40%, so the distrust toward Macron’s governing is high.”

FREDERIC LEROUX, MEMBER OF INVESTMENT TEAM, CARMIGNAC:

“E. Macron’s clear victory is likely to reassure the markets that the European dynamic will continue. In the short term, the main logical beneficiary of this election could be the euro, which was still flirting last Friday with two-year lows against the dollar. As the European equity market has rather outperformed the U.S. market in the last few days, there is not necessarily a reason to expect a massive outperformance of French or European equities against the U.S.

“The negative aspect for the markets of this rather comfortable election could however come from a quick decision in favor of a Russian oil embargo which would exacerbate inflationary pressures and economic slowdown (stagflation scenario) in Europe.” (Reporting by Dhara Ranasinghe and Saikat Chatterjee; Editing by Susan Fenton)