Macron’s Victory Set to Offer Relief to European Markets

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Emmanuel Macron heading for victory in France’s presidential election is set to offer relief for investors who had predicted that a Marine Le Pen win would roil European markets.

The euro opened stronger versus the dollar in early Sydney trading as Macron was headed to secure a second term, beating nationalist and euroskeptic Marine Le Pen. The risk of a victory by the far right candidate had been keeping investors on edge, with some predicting European assets could suffer a selloff comparable to the euro crisis or Brexit.

“It takes off the table one big risk at European Union level,” said Alexandre Baradez, chief market analyst at IG France.

With counting still under way, projections by France’s five main pollsters put Macron on course to win more than 57% of the vote in Sunday’s runoff compared with 42% for Le Pen. The nationalist leader conceded defeat in a speech to her supporters in Paris.

French stocks and bonds alongside the euro had been supported by polls showing a widening gap between the two contenders since the first round. Markets took comfort as politicians on the left and right gave support to Macron and as Le Pen failed to land a major blow in Wednesday’s debate.

While Macron’s re-election won’t come as huge surprise to markets, it should still be a relief, according to Emmanuel Cau, head of European equity strategy at Barclays. He sees room for a “modest relief rally,” with the euro, the CAC 40 Index and French banks’ shares benefiting the most.

“European investors are partying after the French exit polls: a potential black Monday is definitely averted,” said Fabio Caldato, a partner at Olympia Wealth Management. While this is good news for financial markets, he’s remaining conservative and will sell amid any “emotional rebound.”

While Le Pen had abandoned calls made as recently as 2017 to ditch the euro, she still advocated for a referendum on the constitution to make French law superior to EU rules. She wanted to restore permanent border controls in the Schengen zone, which would contradict law in the bloc and likely lead to retaliation.

The 44-year-old Macron, in the meantime, has pledged to make France a cornerstone of a stronger, more integrated EU. His challenge over the next five years will be to muster support for his plans to make the country more competitive by overhauling social policies such as pensions and improving the country’s economic fundamentals.

“Macron’s clear victory is likely to reassure markets that the European dynamic will continue,” said Frederic Leroux, member of the strategic investment committee at Carmignac Gestion. “In the short term, the main logical beneficiary of this election could be the euro.”

With the presidential vote behind, investors will turn their attention to the parliamentary elections in June. The margin of victory was far narrower than last time, when Macron beat Le Pen by more than 30 points. The rise in support for her nationalist program reflects a bitterly divided country.

Although “French political risk will not disappear entirely, this hurdle has at least been passed,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets. This leaves markets “to focus on the ECB and the implications of the ongoing conflict in Ukraine.”

(Updates with election result projections, market reaction and comments throughout.)