European markets to cheer as Macron set to win French election

div classBodysc17zpet90 cdBBJodivpBy Dhara Ranasinghe and Saikat Chatterjeep

pLONDON Reuters – European markets will breath a collective sigh of relief on Monday as proEU centrist Emmanuel Macron looked set to win a second term as Frances president, beating rival farright candidate Marine Le Pen.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pFirst projections after Sundays runoff election showed Macron securing around 5758 of the vote. Such estimates are normally accurate but may be finetuned as official results come in from around the country.p

pWhile a Macron win was the likeliest outcome, markets had fretted about his relatively small poll lead over Le Pen, who favours nationalising key industries, slashing taxes and cutting French contributions to the EU budget.p

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

p“What we have learned form the last couple of years is that the polls are good but not completely reliable,” said Marchel Alexandrovich, European economist at Saltmarsh Economics in London. “So, we are likely to get a relief rally, there would have been such a big upset if Le Pen had won.”p

pThe yield premium demanded by investors to hold French 10year bonds versus European benchmark Germany — a key barometer of relative risks — fell to a threeweek lows around 42 basis points on Friday as investors anticipated a Macron win. p

pFrench stocks closed almost 2 lower and the Euro Stoxx 600 closed down 1.8 as ratehike jitters weighed on global stocks. p

pWhile Le Pen had toned down her antieuro rhetoric, there was no shortage of initiatives that would have put Paris on a collision course with EU partners.p

pSo relief at Sundays election result should be felt across the euro area too.p

pKasper Hense, a senior portfolio manager at BlueBay Asset Management, said he expected the FrenchGerman yield gap to move 10 bps tighter, noting BlueBay had gone short Italian debt on a view that markets were “a bit complacent” ahead of the election.p

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

pMacron will become the first French head of state in two decades to win a second term, promising continuity in the blocs second biggest economy at a time of heightened uncertainty unleashed by the war in Ukraine, surging inflation and the prospect of the rapid withdrawal of central bank stimulus.p

pShares of French banks such as BNP Paribas, Societe Generale and Crédit Agricole, which rallied after Macron‘s strong showing during Wednesday’s key TV election debate, could also see more gains on Monday.p

pOther analysts such as Seema Shah, chief strategist at Principle Global Investors, said that after the kneejerk reaction attention was quickly likely to return to central banks response to soaring inflation.p

pEuropean Central Bank officials are keen to end bond purchases at the earliest opportunity and raise interest rates as soon as July, sources familiar with ECB thinking told Reuters.p

pFocus will also shift to Frances June parliamentary elections. To implement reforms, the new president will need to secure a parliamentary majority. p

pThat election will have a significant bearing on the future policy, so investors with specific French exposure may bide time before taking a view.p

p“Is the outcome of this election clear enough to anticipate that the June parliamentary elections will give the President a majority that will allow him to implement his probusiness and proEuropean policies desired by the markets？” said Frederic Leroux, a member of Carmignacs investment team.p

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

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pp Reporting by Dhara Ranasinghe and Saikat Chatterjee Editing by Sujata Rao and Susan Fentonp

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