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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Euro hits three-week high and French shares jump as election looms – as it happened

Emmanuel Macron, French presidential election candidate for the En Marche! movement.
Emmanuel Macron, French presidential election candidate for the En Marche! movement. Photograph: Jean-Sebastien Evrard/AFP/Getty Images

Afternoon summary: French poll fever sends euro and shares higher

France’s stock market has surged today as excitement mounts ahead of Sunday’s presidential vote.

The CAC 40 outperformed other European indices to end the day 1.7% higher. Almost every share gained ground in a broad-based rally, led by financial companies and industrial firms.

The best and worst-performing shares in Paris today
The best and worst-performing top shares in Paris today Photograph: Thomson Reuters

Shares were boosted by forecasts that independent candidate Emmanuel Macron would win the race to succeed Francois Hollande -- even though opinion polls should be treated with plenty of caution these days.....

The euro has also held onto this morning’s gains, and is trading at a three-week high of $1.076 tonight.

The euro vs the US dollar
The euro vs the US dollar Photograph: Thomson Reuters

Joshua Mahony of IG says traders are pretty confident that Macron will win in the second round of voting, on May 8th.

The stability we have seen in the markets today is a clear nod to the blasé outlook that the trading community is holding with regards to this weekend’s French election.

The first round is widely expected to result in a toss-up between Le Pen and Macron, but most expect voters to team up against Le Pen in the second round. The threat of an upset seems likely to be negated by the structure of the French democratic system.

But could Francois Fillon spring a surprise?

Marchel Alexandrovich of stockbroking firm Jefferies argues that Fillon’s popularity with older voters could be decisive:

For example, one of the latest French polls with a demographic breakdown shows two things: the older voters are more likely to vote, and they still overwhelmingly support Fillon. In fact no candidate carries as much support with any demographic group as Fillon does with the over 65s.

And what if Marine Le Pen, or the far-left’s Jean-Luc Mélenchon, defied the experts?

Daniel Christen of Capital Economics explains how a shock result would reignite the eurozone crisis:

If either Le Pen or Mélenchon were to become the next president, there could be a big reaction in the markets. France’s sovereign credit spread would probably surge as fears over her creditworthiness rose. And in our view, it is likely that the euro would fall. Unlike a potential “Grexit”, a “Frexit” would pose an existential threat to the common currency. Even if investors thought that a “Frexit” wouldn’t occur any time soon, the two candidates’ views on monetary policy might be enough to make investors shy away from holding euros.

And that’s all for tonight. Thanks for reading and commenting. GW

Updated

A reminder, from Sky News, of how close the French election looks:

French opinion polls
French opinion polls Photograph: Sky News

The Economist has just backed Emmanuel Macron for the French presidency.

It argues that the centrist candidate can break the mould of French politics and push through reforms to improve the French economy.

It’s not really a surprise. But here’s a flavour of the Economist’s argument:

Mr Macron is untainted, if only because he is a political outsider. He has never held elected office, though he was the appointed economy minister in the present government. His plans are less bold than Mr Fillon’s, cutting only 120,000 public jobs and €60bn in spending, but an independent study rates them as equally free-market. Mr Macron is pro-business, but more subtle about it. Instead of abolishing the 35-hour week, he would help companies work around it. Rather than raise the retirement age, he would unify the country’s 35 pension schemes, eventually doing more to enhance labour mobility.

Mr Macron is more outward-looking, too. He backs recent EU free-trade deals that Mr Fillon rejects. He is more likely to be able to work with Germany to strengthen the governance of the euro. He is socially liberal, whereas his opponent, close to Roman Catholic traditionalists, opposed gay marriage and wants to limit gay adoption. Mr Fillon would impose immigration quotas and end sanctions against Russia; Mr Macron exhorts the French to live up to their values.

The worry is that Mr Macron will not get his reforms through the legislature. Though En Marche!, the party he founded, will run in every constituency in elections to the National Assembly in June, it will struggle to win a majority, unlike Mr Fillon’s Republicans. But do not write off his political skills. In rallies and on TV he has more than held his own. En Marche! is barely a year old, but it has 250,000 members—more than twice as many as the Socialists.

His critics say Mr Macron is wishy-washy. But he is the only candidate who has made a full-blooded case for the open society and economy this newspaper believes in. That takes courage—the courage to step outside France’s party system, to defend complex arguments against polarising sound bites and to stand for optimism in an age of identity politics. That is a message all democracies need to hear.

More here.

A consequential choice for France—and an uncertain one

The Economist’s Tom Nuttall tweets:

Encouraging news. Consumer confidence in the eurozone has risen to a 25-month high.

It’s another sign that the European economy is strengthening.

Back in Washington, Christine Lagarde has also taken a swing at Germany’s trade surplus, saying the country’s external imbalances should be addressed.

Germany posted a current account surplus of €253bn, or over 8% of GDP; critics want it to spend, borrow and import more to bring this surplus down.

The latest unemployment figures from America show that the US labo(u)r market remains pretty strong.

The number of new applications for jobless benefit rose by 10,000 last week, to 244,000 - well below the 300,000 threshold that shows a healthy jobs market.

But the continuing claims figure, a wider measure of unemployment, is at its lowest level since 2000.

An upbeat-sounding Christine Lagarde has launched this week’s Spring Meeting by calling for a new push for innovation, closer trade ties and a clampdown on tax evasion.

Greece hopes to make bailout progress this week

Greek finance minister Euclid Tsakalotos (centre).
Greek finance minister Euclid Tsakalotos (centre). Photograph: Domenic Aquilina/EPA

The Greek government is hoping to make progress in its negotiations with creditors at the IMF Spring meeting this week.

The country’s finance minister, national economy minister and deputy finance minister are all flying to Washington today for crucial debt talks, including with Fund chief Christine Lagarde.

Helena Smith reports from Athens

Greek officials say the all-important issue of debt – and ways to reduce it – will be at the core of talks the finance and national economy ministers, Euclid Tskalotos and Dimitris Papadimitriou, will have in Washington.

Tsakalotos, whose first meeting will be with IMF managing director Christine Lagarde on Friday, is hoping that the framework of a debt relief deal can be secured in time for the next Eurogroup meeting of single currency finance ministers on May 22.

Athens’ leftist-led government, in a sop to sceptical MPs unnerved by the prospect of further pension cuts and tax increases - concessions made to conclude the long-stalled compliance review at the heart of the country’s latest standoff with creditors - has threatened the measures won’t be implemented if a debt relief deal isn’t cut first even if the unpopular policies aren’t due to be enforced until 2019.

Auditors representing Greece’s bailout lenders are expected to return to Athens next week to complete the technical aspects of the review before a staff level agreement is finally wrapped up. Parliament would then legislate the measures before a comprehensive deal, including medium-term debt relief measures, are put before the Eurogroup of finance minister.

But as ever nothing is quite as easy as it seems. The IMF, which only this week said it could not participate in the latest bailout programme unless Greece’s debt burden became manageable, projected the country’s primary surplus would be just 2% in 2018, well short of its target of 3.5%. That once again leaves the door wide open for renewed friction between the Fund and euro area member states not least Germany which has made IMF participation a condition of further loan disbursements.

In forecasts issued late Wednesday, the IMF attributed Athens’ bigger- than-expected primary surplus of 3.3 percent in 2016 to “temporary factors.” Greece’s economic recovery is hanging by a thread with many fearing it could be thrown into reverse unless a deal is reached and the uncertainty is ended given the country’s tight €7.5bn debt repayment deadline early July.

But speaking to reporters today, Greece’s government spokesman said the country’s extraordinary over-performance “finally noted by the Fund” would determine the fiscal path it would take once its current 86 bn euro bailout programme ended in September 2018.

The government’s over-arching aim was for primary surpluses to be reduced, he said, so that the Greek economy could regain its potential and achieve the highest possible rates of growth.

Updated

A security personnel stands next to International Monetary Fund logo at IMF headquarters in Washington.

Over in Washington, world finance ministers and top central bankers are gathering to discuss the state of the global economy.

Top of the agenda at the IMF/World Bank Spring Meeting will be the new US government, and its protectionist trade policies.

Reuters has more details:

“These meetings will all be about Trump and the implications of his policies for the international agenda,” said Domenico Lombardi, a former IMF board official who is now with the Centre for International Governance Innovation, a Canadian think-tank.

He added that IMF Managing Director Christine Lagarde is aiming to “socialize” the new administration to the IMF’s agenda and influence its policy choices.

Updated

Every politician should have a party trick, and Emmanuel Macron has just tweeted his....

Here’s a lookback at the Harris opinion poll over the last couple of of months:

The pound is still having a solid enough day, up 0.2% at $1.28.

That’s more than two cents higher than Monday morning, before the snap election news. But Robin Bew of the Economist Intelligence Unit isn’t impressed:

Some analysts think investors are too relaxed about the French election.

The FT’s Mehreen Khan explains:

“Markets are unprepared for the worst,” notes Athanasios Vamvakidis at Bank of America Merrill Lynch.

“The worst outcome for markets is if Le Pen and Mélenchon are in the second round, in our view, as markets could start pricing Frexit risks”

Fillon’s late revival in the polls could increase the chances that Marine Le Pen fails to win a place in the final run-off.

That could trigger a surge in the euro and in share prices, believes Kathleen Brooks of City Index. She says a Macron-Fillon playoff would be the most ‘market-friendly’ option.

A win for Macron with Fillon in second place would restore faith in centrist politics, which has been eroded ever since last year’s Brexit vote in the UK and Trump’s triumph in the US Presidential election. The eradication of the Far Left and the Far Right candidates in the first round would likely see a collective sigh of relief that it is politics as usual in France. This combination for the second round could unleash a surge in the Cac, a sharp drop in French bond yields and a decent move higher in EUR/USD back towards 1.10, we could also see EUR/GBP recover back towards 0.8570 – a cluster of key resistance levels.

Overall, there is a chance that the market has been wrong-footed once again by the polls, and Le Pen is not guaranteed a spot in the second round. If we are correct, then the political premium that has kept the euro range bound in recent months could evaporate, allowing the single currency to stage a decent rally on the back of a victory for the two moderate, pro EU candidates on Sunday night.

French Presidential Candidate Francois Fillon Hosts Rally Party in Lille.

One of the more surprising elements of the French election is Francois Fillon’s recent revival.

After unexpectedly winning the Republican nomination, Fillon’s campaign was badly hurt by allegations that his wife had been paid for work she’d not done.

The Penelope Affair, followed by questions over gifts and consultancy fees, seemed likely to sink Fillon’s chances, and his plans for Thatcherite free market reforms.

But instead, he’s been regaining ground - and could yet claim a top-two finish on Sunday.

If that happens, Fillon can thank his core support, and his move towards increasingly populist, right-wing policies.

My colleague Jon Henley explains:

Born in the traditionally Catholic Sarthe department west of Paris, Fillon is the son of a history professor mother and solicitor father. With Penelope, whom he met in Le Mans when she was a student on a year abroad, he has raised five children in a 12th-century chateau.

He has abstained or voted against laws on equality between men and women and same-sex marriage and is personally opposed to abortion, though he would not try to repeal the 1975 law that legalised it in France.

A year after he was first elected as France’s youngest MP, he opposed the 1982 law that effectively legalised homosexuality. A centre-right gay rights group, GayLib, has described his vision of French society as “clearly hostile to LGBT people”.

Fillon has pledged to defend France’s “Christian values”. He would ban medically assisted procreation and use of sperm donors for single women and same-sex couples, and reverse some gay adoption rights.

He has also promised to set annual quotas on immigration, restrict foreigners’ rights to French nationality, set the age of criminal responsibility at 16, build 16,000 new prison cells and, in foreign policy, develop more positive ties with Russia.

The closing days of the campaign have seen Fillon more openly courting a hard-right vote, evoking France’s sovereignty and identity and promising at his Lille rally to crack down hard on immigration and pursue a zero-tolerance policy on radical Islam.

Updated

The candidates to become France’s next president have been campaigning for months, including a major TV debate earlier this month.

But many voters are still uncertain of who they’ll vote for, and their choices could decide the election.

Mihir Kapadia, CEO and Founder of Sun Global Investments, says:

The French election looks very close. Although Macron and Le Pen are expected to make it to the second round, all four candidates are close and 30% of voters are said to be still undecided as ahead of Sunday’s vote. Two interesting weeks ahead in France.”

Pollsters have reported that the number of uncommitted French voters is at unprecedented level.

This chart, from Teneo Intelligence, shows how last minute changes of heart could boost, or undermine, the leading candidates:

.

The “nightmare scenario” for global financial markets is second-round duel between the equally sharp-tongued Le Pen and Melenchon, says Associated Press’s John Leicester.

Victory for either could, in the wake of the Brexit vote, possibly deliver a knockout punch to the EU ambition of ever-closer union among the peoples of Europe because both want to tear up agreements that bind together the 28 EU states.

Melenchon says “the Europe of our dreams is dead.” He proposes “disobeying treaties from the moment we take power” and negotiating new EU rules followed by a referendum on whether France should leave the bloc it helped found. “We either change the EU or quit it,” Melenchon’s manifesto says.

The “totalitarian” EU has also long been one of Le Pen’s pet hates and constant target for her virulent nationalist discourse. She wants an in-out referendum on France’s EU membership, a new French franc to replace the common euro currency, and re-imposing French borders to staunch what she describes as out-of-control immigration.

Like her father, National Front founder Jean-Marie Le Pen, in 2002, she hopes for an electoral coup by making the runoff. But pollsters suggest that, like him, she would likely lose on May 7 to any of the other top three opponents.

Updated

French stock market is rallying

Presidential elections campaign posters in Paris, France.

Paris’s stock market is on track for its best day since the start of March.

The CAC 40 has jumped by 1% today, outperforming the rest of Europe, as investors react to the latest forecasts of a Macron victory.

Financial stocks are leading the rally, with BNP Paribas jumping 2.6% and Société Générale gaining 1.9%. Technology and consumer-focused stocks are also up.

The FTSE 100 is lagging behind, though, partly due to the rise in the pound this morning.

Europe’s stock markets this morning
Europe’s stock markets this morning Photograph: Thomson Reuters

Joshua Mahony, Market Analyst at IG, explains:

The FTSE is weakening once more this morning, as the pound continues its ascent in the wake of Theresa May’s decision to call a snap election in just seven weeks.

To many the appreciation of the pound seems counter-intuitive, yet the prospect of a strengthened Tory majority means there is hope that this election could be good for the UK in Brexit negotiations.

M&S isn’t the only UK retailer shutting stores.

Debenhams has announced plans to close up to 10 shops, and 11 warehouses, as new CEO Sergio Bucher gets to grips with its “tired and old” estate.

UK's Green Investment Bank sold

Newsflash: The government has announced the sale of Britain’s Green Investment Bank to Australian bank Macquarie in a £2.3bn deal (as my colleague Adam Vaughan reported overnight).

It’s an unpopular move with environmental activists, who question Macquarie’s commitment to clean energy.

Dr Doug Parr, Policy Director at Greenpeace UK, says:

“At a time when the government should be shoring up low carbon industry for post-Brexit Britain, they have given away one of our key tools for advancing green technologies. The hole left by the Green Investment Bank will slow our transition to a clean energy system, set us back on reaching our climate targets, and mean more of the jobs from new sectors will go elsewhere.

If the government picks up its pace, the UK could be a world leader in renewable and green technology. But selling a great British success story, which levered private money into eco-projects, to a controversial Australian bank known for asset-stripping, is a disaster. We need investment in the booming clean technology industry in the UK, for skilled jobs, fairer bills and a healthy economy to see us through the next uncertain few years and in to the future.”

The FT’s Jim Pickard suspects the deal is being slipped out under the cover of election fever:

The euro is climbing higher, now up 0.5% to a new three-week high of $1.077.

That’s partly due to general dollar weakness, as well as that French opinion poll suggesting a win for Emmanuel Macron.

Retail news: Marks & Spencer is shutting six UK stores, but promising staff that they’ll be offered new positions elsewhere.

Here’s the statement.

Updated

European stock markets will probably fall sharply if the French election delivers a shock result.

Marketwatch’s Sara Sjölin explains:

And here are the two-way risks: A win for either Le Pen or Melenchon would spark a selloff in risk assets and drive French and European equities down 5%-10% by the end of June, Citi said. However, if Macron or Fillon secures the presidency, stocks in Europe could see a 10%-20% rally before the end of the year, they said.

The pound is also strengthening this morning, up half a cent at $1.2825 against the US dollar.

Reuters’ Jamie McGeever has spotted signs that investors are more confident about UK assets.

The yield (or interest rate) on UK gilts (government debt) has fallen in recent weeks, for example, as the price of the bonds has risen.

Marine Le Pen’s best hope of victory would come in a run-off against former prime minister Francois Fillon, argues Antonio Barroso of Teneo Intelligence.

Barroso believes that many centrist and left-leaning voters might find this choice underwhelming, and not participate in such a second round scenario.

He writes:

The worst-case scenario in terms of a potential Le Pen victory is a runoff between Fillon and the leader of the National Front. This is especially the case considering the former PM’s recent “rightist turn” after he suggested he would include members of an ultra-catholic organization in his administration.

Combined with his frequent attacks on the judiciary, this will only make it more difficult for Fillon to credibly moderate his positions in between rounds. The risk is that center-left voters decide to stay at home on 7 May, allowing Le Pen to be elected by voter neglect rather than by voter endorsement.

Barroso also agrees that Macron would be a much tougher opponent for Le Pen.

French election predictions

This chart confirms that traders have been anxious about the French elections, and the prospect of a eurosceptic winner:

Tactical voting will probaly keep Marine Le Pen out of the Élysée Palace, argues Kit Nicholl, country risk analyst at IHS Global Insight:

In a scenario where Le Pen is pitted against Fillon, or more likely, Macron, voters from the moderate left and right are likely to unite in a so-called “Republican front”, voting tactically to keep the FN out of power.

A Le Pen victory is therefore unlikely but still remains possible, particularly as abstention rates will also play a big role.

Furthermore, the occurrence of a major terrorist attack, widespread urban riots, or the disclosure of damning information aimed at discrediting Macron would all have the effect of significantly increasing the FN’s share of the vote.

Euro hits three-week high

The euro has hit its highest level since the end of March this morning.

The single currency gained 0.3% against the US dollar to $1.074, after a new opinion poll suggested centrist candidate Emmanuel Macron will win the French election.

The euro vs the US dollar today
The euro vs the US dollar today Photograph: Bloomberg TV

Harris Interactive placed Macron on 25% support ahead of Sunday’s first round of voting, ahead of Marine Le Pen (22%).

Republican candidate Francois Fillon (19%) and left-winger Jean-Luc Melenchon (also 19%) followed behind.

Harris also see Macron comfortably beating Le Pen in the second round of voting in May.

The euro has been under pressure from predictions that either Le Pen or Melenchon (or even both) might contest the run-off, as both are extremely critical of the EU and could potentially trigger Frexit.

I’ll pull together some reaction now....

The agenda: Political worries linger

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Political issues continue to occupy the market’s attention today.

The first round of the French presidential election is just three days away, so investors are watching closely to see which candidates make it through to the run-off two weeks later.

The race looks rather tight, raising concerns that the eurozone could be dragged into another crisis if the more mainstream candidates stumble.

Neil Wilson of ETX Capital explains:

Volatility in the euro has peaked at its highest since before the June referendum as markets weigh the prospects of either Marine Le Pen or Jean-Luc Melenchon – or both - making the second round. The killer scenario for the euro would be if both candidates make the May 7th runoff as it would raise the very real possibility of France exiting the euro.

Current polling gives the nod to Macron and Le Pen, with Macron eventually winning. But with four candidates polling around 20% there is every reason for caution. We’re looking at contingency plans in the event of a Le Pen-Melenchon runoff as this would spark a big selloff in the euro and French government bonds, as well as bank stocks.

Britain’s general election also looms over the City, of course, as traders try to calculate the consequences. The latest front pages suggest Theresa May is determined to make Brexit the centrepoint of the campaign:

Overnight, Asian shares have been boosted by some solid trade data from Japan.

Exports jumped at the fastest pace in two years in March, raising hopes that rising demand from overseas could help the sluggish Japanese economy.

There’s plenty of corporate news too, including results from Unilever, Debenhams, and Sky.

On the economics side, there’s eurozone construction figures at 10am BST, the weekly US unemployment report at 1.30pm, and eurozone consumer confidence stats at 3pm.

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