European equities instantly jumped 3% this morning following the results of the first round of the French election.
A “marvellous Monday” was predicted for risk assets with investment professionals appearing unanimous that the outlook for European markets was improving as yields on safe-haven bonds moved higher.
Centrist Emmanuel Macron and the right wing Marine Le Pen triumphed in the weekend first-round election and will go head-to-head in two weeks’ time, with pro-EU Macron tipped for winning after defeated parties showed their support.
“The immediate result is a 3%-plus mark-up for equities in Europe this morning, with French banks leading the charge, up around 7%,” noted John Wyn-Evans, head of investment strategy at Investec Wealth & Investment, who added that the first-round election result “is seen as positive”.
“Given the circumstances, this was the market’s preferred outcome, and the expectation now is that M Macron will prevail in the second round,” he said.
Wyn-Evans said there was strong demand for French sovereign bonds and for sovereigns of riskier peripheral countries. Meanwhile, safe-haven bonds sold off.
Furthermore, the euro strengthened against the dollar.
“Europe’s stock market is calculated to be one of the most operationally geared into continued recovery and – on the long view – has a lot of catching up to do,” Wyn-Evans said.
Bill Street, regional head of investments at State Street Global Advisors, said: “Le Pen will almost certainly be defeated in two weeks time, and equities can continue to rally going into 2018 as non-existential risks can be absorbed.”
He added: “The global economy might not be booming, but growth is returning. Some of the moderate risk premia in the bond market will also disappear, and this would most likely benefit lower-quality assets the most.”
Steven Bell, chief economist at BMO Global Asset Management, said: “The first round of the French elections was unremarkable in one sense: the result came in very close to the indications from the opinion polls. But the extent of the market reaction shows how nervous investors were, worried that the actual polls would deliver another shock result.
“So far this morning, French equities [futures] are up over 5% and the EuroStoxx up over 3%. That’s quite a leap.”
He added: “With the global economy steadily healing, the sigh of relief will be heard far beyond Europe. Risk assets will enjoy a marvellous Monday.”
The firms did limit their optimism with pertinent reminders that European investment markets still faced uncertainty, such as elections in Germany, Italy and the UK, along with Greek debt talks and the continued problem of unemployment.
But Bell said: “Europe has the prospect of several years of above-trend growth with interest rates and inflation staying low. After years of disappointment, 2017 may be Europe’s year.”
©2017 funds europe
