Investors are breathing a sigh of relief over France, for now
Macron victory seen by some as vote of confidence in European Union
Macron supporters celebrate in Marseille
A more united Europe?
A French presidential election victory Sunday by centrist Emmanuel Macron, a former investment banker who campaigned as an unabashedly pro-European reformer, over euroskeptic nationalist Marine Le Pen will feed the notion that a populist wave that led to Britain’s Brexit vote last June and Donald Trump’s U.S. presidential victory has crested.
This is the narrative financial markets have increasingly reflected over the past two weeks, following Macron’s first-place finish in the first round of the French vote. Investors, encouraged by a strengthening European economy and wary of stretched U.S. stock valuations, have already shown increased interest in European equities.
The euro EURUSD, -0.4728% jumped to a six-month high above $1.10 as it became clear Macron had won, but was trading at $1.0960 early Monday, down from $1.0999 late Friday in New York.
“Markets had started to price in the result following the first round of the French elections on 23 April, but Macron’s victory should nonetheless prove supportive for risk assets in the near term — including our overweight position in U.S. and global equities,” said Mark Haefele, wealth management chief investment officer at UBS in a note Monday.
Erik Nielsen, chief group economist at UniCredit, argued in a Sunday note that Macron, in fact, was successful because he focused on pro-European values.
Nielsen wrote that changes outside and inside Europe have focused “vast majority” of Europeans’ minds on shared core values and that Macron “saw this earlier than most, and ran with it.
“In other words, this is likely the beginning of a trend in Europe, rather than a one-off,” he said.
Nielsen and others expect Macron to find an enthusiastic partner in German Chancellor Angela Merkel, who faces her own election challenge later this year. And it should be noted that even if Merkel’s center-right Christian Democratic Union were to be defeated by Christian Schulz’s center-left Social Democratic Party, it would be a traditional changing of the guard between two very pro-European parties rather than an upset of postwar political order.
The wild card remains Italy, which must hold elections within the next year and where the euroskeptic 5 Star Movement remains in the driver’s seat. Former prime minister Matteo Renzi’s victory in an April 30 contest to claim back leadership of the center-left Democratic Party has only partially soothed concerns related to the potential for future Italian turmoil.
And a modicum of caution may still be a good idea on France itself.
Macron was far from a traditional candidate, having built his En Marche movement after leaving the Socialist party. Indeed, the election saw both the center-left and center-right parties shut out of the runoff for the first time.
This points to “a very strong resentment of how politics has been conducted for the past decades,” wrote analysts at Eurasia Group, in a note.
“So far, this has clearly benefited Macron. But the new president still needs to prove himself to the 48% of voters who voted for an even more radically ‘different’ candidate in the first round, as well as the 20% of center-right voters who feel they have been robbed,” they wrote.
Macron, they said, still has to show voters that his plans for economic reforms will be in their own interest, a difficult challenge.
For investors, a sigh of relief over France is understandable. But the election may not yet be the final word.
Source: By WILLIAM WATTS | MarketWatch
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