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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 2.10pm) and Nick Fletcher

France's stock market hits nine-year high in election relief rally - as it happened

Emmanuel Macron, founder and Leader of the political movement ‘En Marche !’
Emmanuel Macron, founder and Leader of the political movement ‘En Marche !’ Photograph: Vincent Isore/IP3/Getty Images

European markets end sharply higher

Emmanuel Macron’s victory in the first round of the French presidential election saw stock markets surge and the euro gain ground against the dollar and pound. The prospect of Macron beating anti-EU far right candidate Marine Le Pen - not to mention the relatively unusual sight of opinion polls making the correct call - gave some relief to investors concerned about the rise of extremism in Europe. Chris Beauchamp, chief market analyst at IG, said;

This [market reaction] might seem a bit overdone, given Macron was always supposed to win the first round, and there is still a second round to go. Only in two weeks’ time will be able to put thoughts of a Len Pen presidency behind us. However, investors seem buoyed by the consistent record of French polling, one that was reinforced by the result yesterday, and are prepared to move back into risk assets once more. Of course, this hasn’t solved all the other problems, such as North Korea, Syria and the Trump administration’s failure to produce any major reforms, but for now the bears have been forced to get out of the way or risk being trampled in the rush to buy stocks again.

The final scores in Europe showed:

  • The FTSE 100 finished up 150.13 points or 2.11% at 7264.68
  • France’s Cac climbed 4.14% to 5268.85
  • Germany’s Dax rose 3.37% to a closing high of 12,454.98
  • Italy’s FTSE MIB closed up 4.77% at 20,684.41
  • Spain’s Ibex ended up 3.76% at 10,766.8
  • In Greece, the Athens market added 1.75% to 683.30

On Wall Street, the Dow Jones Industrial Average is currently up 211 points or 1.03%.

Meanwhile the euro is currently up 1.1% against the dollar and 1.3% against the pound.

Here is our updated markets story:

And on that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

The prospect of Emmanuel Macron becoming France’s next president has prompted the Greek prime minister Alexis Tsipras to call the centrist politician following his first-round win. Helena Smith writes:

The congratulatory message from Tsipras not only underscored the strong alliance between Greece and France, but also how much store Athens sets on Paris’ long-standing support in economic matters. Throughout the seven-year debt crisis, Greece has frequently depended on France’s backing in often fraught negotiations with creditors, not least Berlin.

After weeks of tense talks over the country’s latest bailout review, monitors representing lender institutions will return to Athens to resume inspections tomorrow, European Commission spokesman Margaritis Schinas announced today. The aim was to reach an agreement “as soon as possible,” he said, in comments reflecting Europe’s desire to avert another Greek crisis in the run-up to Germany also going to the polls. The inspection tour, which is expected to be wrapped up within weeks, will focus on the “technical details” of implementing €3.6bn worth of further pension cuts and tax hikes, the latter enforced though broad expansion of the tax base.

Highlighting the extraordinary fiscal adjustment Greece has made, Schinas said the EU statistics agency, Eurostat, had confirmed that in 2016 the country’s primary budget surplus far exceeded expectations coming in at 3.9% of GDP (excluding debt servicing costs). The spokesman said the Commission was confident Greece could meet its budget targets in 2017 and 2018.

Greek newspapers report the French poll news
Greek newspapers report the French poll news Photograph: Eleftherios Elis/AFP/Getty Images

A couple of manufacturing surveys from the US are showing a slight dip in performance.

The Dallas Fed manufacturing activity index dipped from 16.9 in March to 16.8 this month, below expectations of a rise to 17.

Meanwhile the Chicago Fed national activity index for March fell from a 0.27 increase in February to a 0.08 rise. The February figure was itself revised down from 0.34.

Another sign of the relief among investors following Macron’s first round victory, with the volatility index falling sharply:

Wall Street opens higher

US markets have followed the global surge in the wake of the French election first round vote.

The Dow Jones Industrial Average is up more than 200 points or just over 1%, while the Nasdaq Composite opened up 1.1% at a new record high and the S&P 500 rose around 1%.

Here is our French election blog with all the latest developments:

Market euphoria following Emmanuel Macron’s victory in the first round of the French presidential election may not last, says Forex.com technical analyst Fawad Razaqzada:

The euro and stock markets have absolutely surged higher on the back of news Emmanuel Macron secured almost 24% of Sunday’s first-round vote, suggesting he will probably beat Marine Le Pen in a run-off for the French presidency.

The threat that a Eurosceptic leader will preside over France has therefore diminished sharply.

However, the prospects of an unlikely victory for Le Pen remains and that may dampen the enthusiasm expressed by investors today. What’s more, there is always the possibility that the markets may have overreacted to the news. Thus, there is a risk that both the euro and European stock markets may ease back in the days to come, even if the German Dax index has climbed to a new record high level.

Lunchtime summary

Time for a quick recap.

European stock markets are starting the week with solid gains, after centrist politician Emmanuel Macron took a big step towards becoming France’s next president.

The CAC 40 index of top French shares has hit a nine-year high. It is currently up 4.5%, or 227 points, at 5286, its best level since early 2008.

Germany’s DAX hit a record high, while the UK FTSE 100 has jumped by 1.8%, back to 7243 points.

European stock markets at 1.45pm BST today
European stock markets at 1.45pm BST today Photograph: Thomson Reuters

City experts are united in predicting that Macton will beat Marine Le Pen, who came second in yesterday’s first round of voting, on May 7th. This is calming fears that France could vote to leave the European Union in the next few years.

Valentijn van Nieuwenhuijzen, Head of Multi-Asset at NN Investment Partners, says a Macron victory has two important implications for Europe:

“First, it would substantially reduce the risk that the increasingly strong and broad-based recovery in the European economy is derailed by a political shock.

Second, the prospect of stronger rather than weaker cooperation between France and Germany would emerge at the core of Europe, making the region more able to digest new political, institutional and economic challenges in the future.”

The euro continues to hold onto its early gains too. It’s currently up 1.25% against the US dollar at $1.0858, half a cent below the five-month high struck overnight.

But could investors be too complacent about the French election?

Mujtaba Rahman of Eurasia Group thinks that Marine Le Pen will make a close fight of it, and argues that Macron is actually her ideal opponent.

He says:

While she has maintained hostility to immigration as one of the key elements of the FN’s platform, Le Pen has moved its economic platform considerably further left. By promising to protect French living standards from globalization, she has broadened the party’s reach and made it capable of attracting second-round votes from social conservatives and economic protectionists alike.

Almost everything in Macron’s background and his policy platform make it easy for the FN to caricature him as the darling of the pro-EU establishment and of financial markets. They will do this consistently and aggressively over the next two weeks in order to rally the 48% of the vote went to anti-establishment candidates. This does not include Fillon’s 20%.

Updated

Hartwig Kos, vice-CIO and co-head of multi-asset at SYZ Asset Management says the possibility of Marine Le Pen becoming French president appears to have subsided.

That’s because opinion polling has shown Macron would probably secure a larger majority over the National Front leader than, for example, the Republican candidate Francois Fillon (who came third last night).

But despite that, Kos is being a little cautious -- after all , shock results are by their very nature hard to spot.

As he puts it:

“Macron currently leads the opinion polls for the second round by almost 30% – while Le Pen scored poorly in areas such as Paris, at below 5% in the first round. This clearly improved sentiment and many investors are now more willing to bet on a positive election outcome.

We have also started to reposition our portfolios into a more pro-risk stance, recognising that political risks have moved more to the tail than previously expected. Despite this, we have kept some of our hedges intact, as the main characteristic of a tail event is the fact that it is unexpected.”

The US stock market is expected to follow Europe’s lead by rallying when trading begins at 2.30pm BST (9.30am in New York).

The British pound has shed more than 1% against the euro this morning, as traders push up the single currency.

This has taken the euro back to 85p against the pound, recovering its losses since Theresa May called a snap general election a week ago (which pushed the pound up).

Paul Sirani, chief market analyst at Xtrade, suspects that sterling could fall further against the euro in the coming weeks.

He writes:

“European markets soared on Monday morning, with investors confident that centrist candidate Emmanuel Macron will become French President in a fortnight.

“Macron topped the voting in the first round, and if elected, his pro-EU agenda could continue to stabilise markets and boost the euro in the coming months.

“This could spell bad news for the Brexit-hit pound; the prospect of losing further ground to the Euro may be heightened by uncertainty surrounding June’s General Election, with sterling volatility far from over.”

Updated

Rating agency Moody’s has just commented on the French presidential election:

“Moody’s will assess any credit implications associated with the presidential election once the outcome is known.

Fiscal and economic policies are likely to be key rating drivers under the next French presidency given the country’s debt and growth challenges.”

Here’s some reaction to the CBI report into British industry, from Danielle Haralambous of the Economist Intelligence Unit:

Here’s Howard Archer of IHS Global Insight:

And here’s Andy Bruce of Reuters:

Updated

The Union flag.

Britain’s factory bosses have reported that 2017 got off to a good start, but there may be tougher times ahead.

The CBI’s latest industrial trends survey shows that export orders for manufacturing goods jumped at the fastest pace in six years, in the three months to April. Orders from outside the EU rose at their fastest ever pace.

Domestic orders were also solid, jumping at the fastest rate since July 2014 during the quarter.

Rain Newton-Smith, the CBI’s chief Economist, says UK-manufactured goods are in demand.

“UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.

“Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.”

However.....firms did also report a slowdown in export orders in April alone, after a strong March. That may be a sign that production could slow this summer......

Bloomberg have a rather neat scoreboard showing the state of the markets today.

It show that Europe’s stock markets are strongly higher (first column), with most currencies up against the US dollar (second column).

Government bond yields have fallen (third column), which means prices have risen, while the cost of insuring said bonds has fallen (fourth column).

Here’s Nick Fletcher on this morning’s market action:

The gold price has fallen sharply this morning, down 1% to $1,270 per ounce.

That’s because investors are ditching safe-haven assets in favour of riskier ones:

This chart shows how French shares have risen to their highest level since the financial crisis in 2008.

The CAC 40 index over the last decade
The CAC 40 index over the last decade Photograph: Thomson Reuters

Mihir Kapadia, CEO and Founder of Sun Global Investments, says traders are expecting a resounding win for Macron on May 7th:

“The first round of the French Presidential election, as expected has led to second round contest between Macron and Le Pen.

However, the fact that Macron currently leads over Le Pen does effectively remove the prospect of a victory for Marine Le Pen and her anti EU agenda. Polls see Macron beating Le Pen by a decisive 60%-40%.

Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, agrees that Macron looks like a shoe-in:

For the first time in six decades, both mainstream parties were eliminated in the first round, highlighting a sentiment of change that is sweeping across the political landscape of advanced economies. Could Macron – a centrist political newcomer – be to France what Trudeau is to Canada.

Sunday’s result is consistent with recent polls and our base case expectations. Crucially for investors, the presence of centrist candidate Macron in the second and final round significantly increases the probability of a pro-EU French president; based on the polls we assign an 80% to 85% probability of Macron winning, and the backing of François Fillon and Benoît Hamon would further strengthen his case

CAC 40 hits nine-year high

Newsflash! The French stock market has now hit its highest level in nine years as the election relief rally gathers pace.

The CAC 40 has burst through its April 2015 high, and is now up 4.5% to levels last seen in 2008, before the world economy entered its deepest crisis in decades.

Industrial stocks, and financial companies, are in hot demand thanks to optimism that France is unlikely to elect a eurosceptic president.

Investors are relieved that far-left candidate Jean-Luc Mélenchon didn’t join Marine Le Pen in the second-round.

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, explains:

“The main worry for investors and traders watching the French election was that voters would be presented with a choice between anti-EU candidates on the left and right in the second round.

With roughly 55% backing pro-EU candidates over the weekend and the polls clearly pointing to a Macron victory in the run off with Le Pen, the euro rallied strongly.

“In stocks and bonds, markets were also taking the good news early as French bond yields dropped and stock markets rallied across the board.

And in Berlin, Germany’s stock market has hit a record high in the last few minutes.

Updated

ABN Amro: President Macron would face obstacles

Emmanuel Macron.

Emmanuel Macron faces a serious challenge to revitalise the French economy, assuming he becomes the next president.

One potential hurdle is that his En Marche! party probably won’t win a majority in June’s legislative elections.

That means Macron would have to build alliances in the French assembly to actually get things done.

Analysts at ABN AMRO have warned their clients that Macon could face “major obstacles”.

They say:

Even presidents with the best intentions have struggled to pass reforms in France. They have been blocked by vested interests, street protests and strikes in the past. Macron could also face the obstacle of not having a parliamentary majority.

Under France’s semi-presidential political system, if a president’s party is different to that of the majority of members in parliament, the government is divided – this is called “cohabitation”. Such a scenario seems likely in the event of a Le Pen, but also a Macron victory.

When this happens, the President can become a marginal figure in national politics. In 1998, for example, the Socialist government of PM Lionel Jospin used its parliamentary majority to pass legislation shortening the work week from 39 to 35 hours, against the wishes of the centre-right President Chirac.

Macron’s economic plan

In another encouraging signal, German investor confidence has hits its highest level in over five years.

That’s according to the monthly IFO index, which suggests Germany’s economy is growing strongly right now.

Anna Stupnytska, global economist at Fidelity International, says investors - and policymakers - should be remain cautious until the presidential run-off is over:

“Markets will be buoyed by the positive outcome of the French election last night, with the centrist Emmanuel Macron going on to face the far right Marine Le Pen. This is not just because Macron is likely to win. Concerns over polling reliability and the turnout rate have been allayed after Sunday’s strong figures and markets reacted positively to the result in Asian trading this morning, with the euro up against the US dollar and Japanese yen and French bonds performing well.

“However, Le Pen could still potentially win the second round. It is probably too early for markets to see a big relief rally just yet or indeed, for the ECB to send any signals on tapering its bond purchase programme this week. The focus now will be on whether Le Pen changes her anti-EU messages in the next few days, with the Le Pen-Macron debate scheduled for 3 May.”

Emmanuel Macron vs Marine Le Pen was the market’s preferred outcome, says John Wyn-Evans of Investec Wealth & Investment.

Like most City experts, Wyn-Evans also expects Macron to win on May 7th.

His policies cleverly appeal to both sides of the political spectrum, and they are succinctly described by the Financial Times as a “business-friendly agenda coupled with Nordic-style welfarism”, encompassing, for example, labour market deregulation, lower corporation tax, and no social security contributions for those on the minimum wage.

He is also a strong supporter of the European Union, although a full exposition of his EU policies might have to wait until we know who wins the German election later this year.

Paris

BlackRock: Don't rule out a French surprise

Analysts at investment group BlackRock have warned investors not to get carried away ahead of the second round of voting, in two weekend’s time.

They say:

Business-friendly and pro-European Macron, who has maintained a large winning margin in head-tohead polls with Le Pen, can now build on his momentum.

Other candidates on both the left and right said they would vote for Macron while issuing strong statements against the National Front. We see markets pricing in some remaining political risk, given the potential for surprises in the next two weeks. Any significant shift toward Le Pen in the polls could dampen investor sentiment due to her anti-euro stance.

But right now, the CAC 40 index of leading French shares is sitting proudly at a two-year high:

The CAC 40 over the last five years
The CAC 40 over the last five years Photograph: Thomson Reuters

DIY group Kingfisher is leading the rally in London, up 5.2%. It’s closely exposed to the French economy, through its Castorama chain.

The Macron relief rally is also driving shares up in London.

The FTSE 100 has jumped by 130 points, or 1.75%, in early trading to 7238 points.

Financial stocks are (unsurprisingly) driving the rally, with Barclays up 4%, Royal Bank of Scotland gaining 3%.

The FTSE 100
The FTSE 100 Photograph: Thomson Reuters

Bank shares are jumping across Europe this morning:

Other European stock markets are also up strongly, with Germany’s DAX gaining 2%.

French stock market hits two-year high

Shares are rallying across Europe at the start of trading, as traders react to last night’s French election.

In Paris the CAC 40 has jumped by 4% to its highest level since April 2015.

Bank shares are leading the rally, with Societe Generale, Credit Agricole and BNP Paribas up by around 10% each.

The French stock market this morning
The French stock market this morning Photograph: Thomson Reuters

Mike van Dulken of Accendo Markets says traders are cheering the news that Macron and Le Pen have progressed to the second round run-off of the French presidential election, adding:

The assumption is that centrist Macron is victorious in a fortnight’s time, picking up supporters of Fillon, Hamon and Mélenchon.

Updated

This chart explains why investors are so confident that Macron will become the next French president in two weeks:

Macron vs Le Pen

Here’s Jon Henley’s head-to-head guide to the two candidates who will contest the run-off in a fortnight:

French bonds surge

France’s government bonds are rallying hard in early trading, in another sign of relief about last night’s election results.

This means the gap between French and German borrowing costs has narrowed sharply, showing that investors are more confident about lending to Paris.

That’s because the threat of France leaving the euro has now waned, given Macron’s pro-European credentials.

France’s stock market is tipped to rocket this morning, quite possibly by more than 4%.

That’s because the ‘nightmare scenario’ of Marine Le Pen becoming French president appears to have been squashed, says Neil Wilson of ETX Capital:

With pollsters and analysts giving the FN candidate virtually no chance in the second round against Macron, those really big worries that many had coming into this election - the risk of ‘Frexit’ and a breakup of the Eurozone - have definitely subsided. But they have not vanished.

The agenda: Markets cheers French election

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

A wave of relief is sweeping through the markets this morning, pushing the euro up and triggering a wave of buying.

The first round of the French election delivered the result that most investors were hoping for, calming fears that the eurozone faced another threat to its existence.

In a massive snub to the established parties, the presidency will be contested between centrist Emmanuel Macron and National Front leader Marine Le Pen. And there’s a widespread expectation that Macron is ready to march into the Élysée Palace.

The euro spiked to a five-month high over $1.09 when the polls closed last night, and forecasters correctly predicted that Macron had won first place.

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

Most of the defeated candidates have already thrown their support behind Macron, and he is heavily odd-on to become the next French president.

If you missed last night’s excitement, let our Paris correspondent Angelique Chrisafis explain:

The independent centrist Emmanuel Macron has topped the first round of the French presidential election and according to projections will face the far-right Front National’s Marine Le Pen in a standoff marked by anti-establishment angerthat knocked France’s traditional political parties out of the race.

Macron topped Sunday’s first round with 23.9% of votes, slightly ahead of Le Pen with 21.4%, according to near-final results from the interior ministry. Macron, 39, a political novice, now becomes the favourite to be elected as France’s next president. He is the youngest ever French presidential hopeful and has never run for election before.

After the UK’s vote to leave the European Union and the US vote for the political novice Donald Trump as president, the French presidential race is the latest election to shake up establishment politics by kicking out the figures that stood for the status quo.

The French election is the main discussion point in the markets today, but there are a couple of other things on the agenda.

  • 9am: German IFO business confidence report for April
  • 11am: The CBI’s survey of UK industrial trends in April
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