European markets slip as Macron boost fizzles out
An early burst of enthusiasm as Emmanuel Macron won the weekend’s French presidential election saw the country’s stock market hit a new nine year peak. But this soon wore off, as investors either took profits or decided Macron had done the easy part by winning and now faced the problem of getting his proposals agreed. Jasper Lawler, senior market analyst at London Capital Group, said:
The French election turned out to be a buy the first round, sell the second round affair. French shares fell on Monday with the CAC index down significantly more than other European equity benchmarks. It’s not disappointment in Macron, who is widely seen as business-friendly but just that the market saw this result coming a mile away.
On top of that, some weaker than expected Chinese trade data hit commodity prices and thus mining shares, taking away some support for markets. So the final scores showed:
- The FTSE 100 edged up 3.43 points or 0.05% to 7300.86
- Germany’s Dax dipped 0.18% to 12,694.55
- France’s Cac closed down 0.91% at 5382.95
- Italy’s FTSE MIB fell 0.26% to 21,428.10
- Spain’s Ibex ended down 0.35% to 11,096.3
- But in Greece, the Athens market added 1.25% to 763.42
On Wall Street, the Dow Jones Industrial Average is currently up just 4 points or 0.02%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
The gains in the oil price on hopes of an extension to Opec’s production cuts has now been reversed:
In spite of all the OPEC jawboning the price of oil is slip sliding away again with Brent Crude Oil below US $49
— Shaun Richards (@notayesmansecon) May 8, 2017
The volatility index - the so-called fear index - has fallen again, in a sign of how calm the markets are at the moment:
VIX drops to lowest level since Feb. 14 2007 https://t.co/wnBLQbXENZ pic.twitter.com/pbqF5zdGqV
— Bloomberg Markets (@markets) May 8, 2017
Updated
Greek parliament to vote on bailout measures next week
Over in Greece it has been officially announced that legislation of further creditor-demanded fiscal measures will take place next week. News of the vote came as Greek politicians welcomed Emmanuel Macron’s election as France’s new president. Helena Smith reports from Athens:
After finally agreeing to the controversial policies, the Greek government will go through the process of legislating them in parliament next week, according to the assembly’s president Nikos Voutsis. As of Monday 15, MPs sitting on an array of committees will discuss the measures, which range from pension cuts and tax increases to liberalising Sunday trade, before they are brought before the 300-seat chamber for debate on May 17 and then put to the vote on Thursday 18.
Voutsis, who represents the ruling Syriza party, predicted that the policies would pass easily with no defections from the leftist party or its junior partner, the right wing Independent Greeks, despite a massive turnout at the weekend by retailers protesting against the prospect of shops opening on Sunday.
Counter measures negotiated by the government offsetting losses in the event of a primary budget surplus target being achieved were also likely to be supported by opposition MPS who have otherwise threatened to reject the measures, he said. The policies come into force from January 1 2019.
Legislation is crucial to eurogroup finance ministers agreeing to disburse further loans from Greece’s third, €86bn bailout on May 22. Athens faces debt repayments of €7.5bn in early July – dues it could not honour without the emergency assistance.
The agreement is expected to pave the way to serious talks on debt relief with Greek government officials expressing the hope that as newly elected president, Emmanuel Macron will help facilitate the process. Greece has long depended on France for backing in negotiations with the German-led EU. As France’s former economy minister, Macron earned a reputation as an opponent of rigid austerity fuelling hopes in Athens that Paris will now actively help lobby the rest of the EU for debt relief.
Photograph: Louisa Gouliamaki/AFP/Getty Images
The Greek prime minister Alexis Tsipras tweeted: “Emmanuel Macron’s victory is a breather for France and all of Europe. I am certain we will closely cooperate to change Europe’s course; to again inspire its peoples, so as not to relive the nightmare of the extreme right.”
Later in the day deputy prime minister Giannis Dragasakis held talks with the French ambassador to Athens to highlight the issue of debt relief and Emmanuel Macron’s support of it for the debt-stricken country.
Updated
More on oil, from Chris Beauchamp, chief market analyst at IG:
On an otherwise dull afternoon, we have oil producing nations to thank for providing a degree of interest.
Saudi Arabia, the only voice that really matters, has joined the chorus of those hinting at more production cuts to come, which has helped to keep oil steady above $46 per barrel.
OPEC has to be credited for its efforts to keep the price up, but with shale oil now becoming increasingly viable and US production ramping up accordingly, it is no longer a case of just running faster to stay in the same place. OPEC would have to slash output dramatically to even begin putting a dent in the upward trend of oil output, and doing so would put intolerable financial pressure on many governments, including Riyadh. This dance has further to run, but at the moment its hard to see how it ends any way other than badly for OPEC.
Can also say markets are more relieved that #LePen lost than #Macron won. France still does well at opinion polls since the late 60s
— Ashraf Laidi (@alaidi) May 8, 2017
On the market reaction to Macron’s victory, Michael Hewson, chief market analyst at CMC Markets UK, said:
While the sense of relief is palpable amongst European leaders, markets have moved on and shifted their focus to the likelihood that the new French President will be able to enact his reform program, one of which is to pledge to reduce unemployment to 7%, a level only seen once in the last 30 years, at the beginning of 2008.
Even if his party does well in next month’s French assembly elections, getting a majority is likely to be a tall order. Looking at the votes cast gives a sense of the scale of the task, with Mr Macron getting over 20m votes, while Marine Le Pen got just over 10m.
What was more telling was the number of votes that were spoiled or abstained which came to 15m, which brings a total of 25m voters who didn’t like, or didn’t care for the new President’s vision for France.
US markets have followed the pattern established in Europe.
Open higher on relief that Emmanuel Macron won the French presidential election, then fall back on profit taking and concerns about whether he will be able to successfully undertake his proposed reforms.
So after hitting new intra-day highs, both the S&P 500 and Nasdaq Composite have slipped back, while the Dow Jones Industrial Average remains down around 30 points or 0.16%.
Meanwhile oil has moved back into positive territory on further talk that Opec’s production deal could be extended beyond June.
So OPEC talks as it currently stands citing sources...
— Anthony Cheung (@AWMCheung) May 8, 2017
Extend 6-months
OR
Extend by 9-months
OR
Extend 12-months according to 1 source
Record highs for Nasdaq and S&P
US markets have opened in mixed fashion, with the S&P 500 and Nasdaq Composite both hitting record highs.
The two indices opened around 0.2% higher, but the Dow Jones Industrial Average on the other hand is current down 24 points or 0.12%.
Elsewhere oil prices are edging down despite Saudi Arabia’s energy minister suggesting Opec would extend its current production cuts until the end of the year, and perhaps longer.
The agreement, designed to support the flagging oil price, was due to be in force until the end of June, but Khalid al-Falih told a conference in Malaysia:
The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average.
Based on the consultations I have had with participating members, I am rather confident the agreement will be extended into the second half of the year and possibly beyond.
And I am also very confident that the global oil markets will soon rebalance and return to a healthy state.
Photograph: Kamran Jebreili/AP
However crude prices have continued their recent slide, with Brent down 0.59% at $48.81 a barrel. US shale producers have been increasing output, taking up the slack from any Opec cutback. Peter Rosenstreich at Swissquote Bank said:
Saudi oil minister Al-Falih has indicated that oil production cuts would likely be extended, which makes sense given the weak oil price.
There is increasing expectation that the summer driving season will draw down inventories putting pressure on oil prices. Yet it’s unlikely that OPEC’s supply side efforts will transfer into the broader crude markets. US oil producers have become extremely nimble in reacting to volatility in demand.
Updated
The WSJ’s Mike Bird nails it:
Worst relief rally ever
— Mike Bird (@Birdyword) May 8, 2017
Why the European stock market rally might be over
European stock markets have been enjoyed steady gains in 2017, with many indices up around 10% since 1 January.
But ironically, Macron’s victory might bring an end to the rally, argues Steen Jakobsen, chief economist at Saxo Bank.
He writes:
We have been very positive on both the euro and European (mainly French) equities of late. Now, however, it’s time to go neutral on both as Macron’s real work will be vastly different from merely winning the presidency.
The key, says Jakobsen, is Macron’s ability to reform the economy:
The one thing that France needs, of course, is labour market reform. A 10% unemployment rate is too high to create sustainable new growth and for Macron to succeed, he needs to “help” Le Pen’s voters – the disenfranchised, the anti-globalisation crowd who are afraid of worse to come.
This is a formidable task, but Macron’s timing is good. Europe has been through an “internal devaluation”, so labour market reforms and a focus on creating instead of preserving jobs should do wonders for France.
If this fails, however, it could easily tip the scales for Le Pen in five years’ time.
It’s lunchtime in the City, but anyone expecting to celebrate a booming morning has been disappointed.
Rather than rising like a decent French soufflé, the markets are stubbornly pancake-flat.
The FTSE 100 has scrambled up by 12 points, but the other European markets are still down a little - with France’s CAC 40 the laggard.
One of those days when old City hands mutter sagely about ‘selling the news’, ‘profit-taking’ and so on.
Fawad Razaqzada, market analyst at Forex.com, says we shouldn’t be surprised. He also suspects that weak trade data from China overnight has cast a shadow over trading floors too:
A classic reaction in the markets to the outcome of the French elections. It was widely expected that pro-euro centrist Emmanuel Macron was going to become the new President of France and that he would beat the euro-sceptic Marine Le Pen by a wide margin. And so it proved.
Given that possibility, Friday’s sharp moves in some markets - including the DAX future, which surged disproportionately higher - looked bizarre to me. Unsurprisingly, the German index has been quick to undo that move at the start of this week as speculators sold their bullish positions, some at healthy profits.
The appetite for risk has fallen further at the start of this week because there has been further evidence of a slowing Chinese economy. After the weakness in manufacturing PMIs, the latest trade figures for April, released overnight, have revealed a sharp slowdown in exports growth to 13.4% from 22.3% year-over-year while imports have also weakened.
Fitch: French Election Reduces Political Risk; Challenges Ahead
Rating agency Fitch has also opined on the French election, and like Moody’s it believes Macron faces a tough battle.
They point to the relatively low turnout, and the high number of abstentions (more than voted for Le Pen!), adding:
A challenge for the incoming administration will be to address the concerns that have led to rising support for populist and Eurosceptic parties, such as high unemployment (around 10% in France versus 4% for ‘AA’ peers), while enacting potentially unpopular economic and fiscal reforms and maintaining a commitment to EU integration.
Final results: Macron 66.1%, Le Pen 33.9%
— Emily Mansfield (@erm3114) May 8, 2017
That's 20.8m votes for Macron, 12.1m abstentions, 10.6m votes for Le Pen, 4.1m spoiled/blank votes pic.twitter.com/8hb7jxRlon
Emmanuel Macron’s economic vision includes tax and spending cuts, deficit reduction, a shrinking civil service and a deregulated labour market.
All things which might prove unpopular with sections of French society, judging by past history.
This chart, via economist Fred Ducrozet, has more details:
It's not true that we don't know Macron's programme - here are some key points. What we don't know is whether he can implement it. pic.twitter.com/onv74tPBzh
— Frederik Ducrozet (@fwred) May 8, 2017
Updated
There’s another reason for the lacklustre market reaction today - a stronger European economy could lead the European Central Bank to tighten monetary policy sooner.
The ECB has been pumping billions of euros into the eurozone economy for a few years now, through its bond-buying stimulus programme. Inflation has now picked up, and growth prospects look more appealing....so investors face the prospect that the tap of cheap money could be turned down.
Larry Hatheway, chief economist at Swiss asset manager GAM, has a good take:
Although [ECB president Mario] Draghi has clearly and forcefully defended the ECB’s current accommodative stance, that view is drawing more attention and criticism given improved eurozone economic performance, reduced financial tensions and, perhaps now, less political risk.
Any hints the ECB is contemplating a shift to a neutral bias could provide the impetus for the next rise in global bond yields, a narrowing of spreads between US and eurozone bond yields, and a stronger euro.”
The euro continues to slide back from last night’s highs, and is now down over half a cent.
#EURUSD paring gains on post-#Macron profit taking. at 1.0935
— Ipek Ozkardeskaya (@IpekOzkardeskay) May 8, 2017
Back in the UK, there are fresh signs that the once-buoyant property market is cooling.
Halifax has reported that prices fell by 0.1% in April. That took the average price down to £219,649, in April from December’s record high of £222,190.
Separate data has shown that London rents are falling, as increased supply and tighter household budgets bite:
In an encouraging signal for Europe, investor confidence across the eurozone has hit its highest level in almost a decade.
Research group Sentix’s monthly measure of investor morale jumped to 27.4 in May, sharply up on April’s 23.9.
The survey took place from May 4th to 6th, and shows that anxiety over political instability was already waning ahead of Sunday’s election.
As Sentix puts it:
“Investors are obviously expecting a decrease in political uncertainties in the euro zone.”
Moody's: Macron faces many tests
Credit rating agency Moody’s reckons Emmanuel Macron’s economic plan should be positive for France’s credit rating, which is currently just Aa2, the third-highest rating available.
However, Moody’s is also worried that France could face five years of “policy drift”, if the next president struggles to win support for his policies.
In a report just released, Sarah Carlson, a Moody’s Senior Vice President, says:
“The ability of France’s policymakers to design, and successfully implement, policies which enhance growth and support fiscal consolidation over time will drive the trajectory of France’s rating and outlook over the medium-term.
The new president will face tests in all of these areas.”
France’s general government debt is nearly 100% of GDP and is unlikely to decline materially before the end of this decade, Moody’s warning.
It also fears that the country’s growth potential is “relatively weak, with trend growth unlikely to be above 1.5%, without significant growth-enhancing reforms”.
Updated
Trevor Greetham, Head of Multi Asset at Royal London Asset Management, agrees that Macron’s victory has brought relief rather than jubilation to the financial world.
“Markets would have been seriously upset by a Le Pen win, which could have called into question the integrity of the Euro area, setting off financial strains that would make Brexit look like a walk in the park.
“Macron’s first challenge is to attract political backing, to form a government that allows him to implement the reforms France needs, in order to bring down unemployment and solidify support for the European project. However, June’s parliamentary elections don’t carry the same near term risks for financial markets as the presidential election.
Investors around the globe will be relieved that the eurozone’s second largest economy isn’t being handed to an anti-establishment candidate like Marine Le Pen, says Jaisal Pastakia, Investment Manager at Heartwood Investment Management.
So why aren’t markets really roaring?
Two reasons, I think. One is that shares have risen since the first round of Presidential voting, in which Macron came first. Anyone who went long on French shares earlier this year is sitting on a decent profit, and may be tempted to bank it.
The second is that En Marche! may not win sufficient seats in the French assembly to give Macron an easy ride.
Pastakia says:
“Emmanuel Macron has won convincingly against Marine Le Pen in this weekend’s election.
In anticipation of a Macron victory following the first round two weeks ago, European equities have bounced and the euro has rallied against the major currencies. Much was priced into markets before the event, but we remain positive on a medium term view. Of course, questions remain around what Macron can actually achieve over the longer term. A lot will depend on the outcome of the parliamentary elections in June and the mandate he can secure. The risk is France gets a fragmented parliament.
And here’s more City reaction:
For a classic case of buy the rumour, sell the news, look no further than French stocks today. #Presidentielle2017 https://t.co/iOExsQdB9s pic.twitter.com/QaxqKX3fqF
— Namitha Jagadeesh (@namithaj) May 8, 2017
1. Buy the rumour 2. Sell the news 3. Find a new rumour
— Aurelija Augulyte (@auaurelija) May 8, 2017
Could some of the people saying Macron's win is good for risk assets please go out and buy some?
— Mike Bird (@Birdyword) May 8, 2017
New York financier, late-40s, recently split from firebrand French nationalist, seeks new reason not to buy European equities.
— Five Minute Macro (@5_min_macro) May 8, 2017
The euro has also lost its oomph, and has just dropped 0.4% to $1.096, away from last night’s six-month high.
Darren Ruane, Head of Fixed Interest at Investec Wealth & Investment, suspects that some traders are banking their winnings.
“Given that Macron’s election win was fully expected by markets, early price movements show a small degree of profit-taking.
Updated
Rally fizzles out
Market, eh? After a brief Macron bounce, the main European indices have all now dipped into the red.
And after hitting that post-crisis high, France’s CAC 40 has dropped back.
Investors are certainly not spooked by the election result -- but some are expressing concern about Macron’s ability to deliver.
Oxford Economics, for example, say:
Emmanuel Macron’s landslide victory shows French voters acknowledged that leaving the euro will not solve the economy’s problems. However, Le Pen’s still strong showing shows how Macron has just five years to turn France around.
His programme can put France back on a path of stronger growth, but he may only get a small majority in June’s parliamentary elections.
French stock market hits post-crisis high
The Paris stock market is open...and France’s main stock market index has hit a new nine and a half-year high.
The CAC 40 inched up by 0.2% to its highest level since the financial crisis struck almost a decade ago.
Bank shares are leading the rally, with Credit Agricole and Societe Generale both gaining ground.
But it’s a fairly muted reaction to Macron’s win -- partly because investors had expected it (so it was largely ‘priced in’).
Nicholas Brooks, Head of Economic and Investment Research at asset manager Intermediate Capital Group (ICG) says Macron’s win is clearly good for Europe; politicians now need to take advantage of it.
“Macron’s win was not unexpected but it will add to already improving sentiment towards Europe as economic and earnings results have surprised on the upside in the early months of 2017.
The focus now will be on whether the EU can take advantage of the recent positive political and economic momentum to tackle some of the fundamental issues that have contributed to the structural problems facing the region and the rise of the populists.”
My colleague Alexandra Topping is covering all the latest French political action here:
French borrowing costs hit six-month low
Investors are piling into French government bonds this morning, driving down Paris’s borrowing costs.
Reuters has the details:
The premium investors demand to hold 10-year French government debt over German equivalents tightened to its lowest since early November after centrist Emmanuel Macron won the French presidency on Sunday.
European leaders hailed the victory of Macron as a vote for European unity and a blow to political forces that had sought to build on last year’s Brexit vote to tear apart the European Union.
France’s 10-year borrowing costs dropped at the open on Monday, and the spread over German 10-year government bond yields fell to 32.7 basis points in early trade, its lowest since November 10.
Here’s our news story about how the euro reacted to Macron’s win:
Macron victory: What the experts say
Emmanuel Macron’s victory has spared world stock markets from a major crash.
But many analysts are already pondering the challenge faced by the 39-year old president-elect.
Fidelity International’s global economist, Anna Stupnytska, fears the En Marche! movement could struggle to deliver all its pledges.
I expect Macron to manage the Presidency in a pragmatic way, pushing through some--if not all--reform, which should still be beneficial for France’s growth potential.
Outside of domestic policies, Macron is clearly pro-EU which boosts the prospect for further eurozone integration, particularly if Martin Schulz replaces Angela Merkel as Chancellor in September. But even here, pragmatism is likely to prevail with a different, more flexible model of the EU likely emerging over the next few years.
Naeem Aslam of Think Markets reckons the euro could have slumped by 10% if Marine Le Pen had won. Instead we have stability, but plenty of hurdles ahead.
The Frexit goblin will remain locked up as Macron takes the reins. French voters have clearly expelled the populist surge which resulted in Brexit and carried Donald Trump to the White House.
Hopes are really high and Macron will have to deliver. Risk of failure in delivering higher growth and lower unemployment is going to be the focal point and it is in this manner that all eyes will now turn towards the June parliamentary elections. Macron needs to make sure that he has a strong hand in the parliament which will help him to make swift movements. The unemployment rate in the country remains stuck at 10 percent, greater than that of the UK and Germany, so it clear that the country needs critical reform.
Macron’s next test is the French national assembly elections in June.
Michael Hewson of CMC Markets thinks they could be “another ball game” for Macron, as he won’t simply have to be more appealing than Le Pen.
While politicians in Europe let out a collective sigh of relief what the result can’t disguise is the level of voter dissatisfaction in France as a whole, given that nearly half the French electorate still voted for parties who ran on an anti-globalisation ticket.
Knowing all of this the new French President may well find that winning was the easy bit. It’s all well and good running on a ticket of cutting 120,000 public sector jobs, a €60bn cut in public spending and a lowering of the unemployment rate to 7%, it will be another getting it through the French parliament.
Financial journalist Katie Pilbeam is already looking to 2022:
Pressure on #MacronPresident now to reduce 10% jobless rate, create growth and control his government otherwise Le Pen will be back in 5 yrs
— Katie Pilbeam (@KatiePilbeamTV) May 8, 2017
Introduction: Macron victory cheers investors
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The markets have a spring in the step this morning after Emmanuel Macron notched up a famous victory for the pro-European centre-ground against the populist far-right.
Japan’s stock market has hit a 17-month high, jumping by 2%, as a relief rally swept Asia.
Good morning EMEA!
— David Ingles (@DavidInglesTV) May 8, 2017
Asia risk-on post-Macron victory.
Japan reopens - on track for best session in 3 months.
China falls (trade data miss) pic.twitter.com/bcHM2KIyFg
We’re now expecting solid gains in Europe too. France’s CAC 40 is tipped to jump by 1% when trading begins soon, and it could hit a new nine-year high.
Our European opening calls:$FTSE 7333 +0.49%
— IGSquawk (@IGSquawk) May 8, 2017
$DAX 12842 +0.99%
$CAC 5494 +1.13%$IBEX 11238 +0.92%$MIB 21710 +1.05%
Macron’s victory means that investors can stop worrying that France might quit the euro or exit the European Union - both possible if Marine Le Pen had beaten him to the Élysée Palace.
Neil Wilson of ETX Capital captures the mood:
“Markets are set for a buoyant start to the week after Emmanuel Macron eased to a widely-predicted election. Not only the victory but the scale of it should help deliver a significant boost to sentiment on Monday morning, even if turnout was quite low.
The result sends a loud signal to investors that political risks in France and across Europe are receding and that is undoubtedly supportive of European equities and the euro.
But the relief is a little limited. Macron has the most powerful job in France; now he faces one of the trickiest tasks in European politics, to reform its economy, drive down unemployment, comply with the EU’s budget deficit rules, and generate growth. All in the shadow of populism, with Le Pen already vowing to rebrand her movement.
The euro hit a six-month high of $1.1022 last night when the scale of Macron’s victory -- 65% to 35% -- became clear. But it’s since fallen back to $1.098, as investors ponder the scale of the challenge ahead.
Macron has already vowed to deliver, as my colleague Angelique Chrisafis reported from Paris:
Addressing thousands of supporters in the grand courtyard of the Louvre, the vast Paris palace-turned-museum, Macron said he would defend France and Europe. He said Europe and the world are “watching us” and “waiting for us to defend the spirit of the Enlightenment, threatened in so many places”.
He promised to unite a divided and fractured France, saying: “I will do everything to make sure you never have reason again to vote for extremes.”
Speaking of his meteoric rise and victory that was not forecast even a year ago, he said: “Everyone said it was impossible. But they didn’t know France!”
Macron tells those who voted for him only to stop Le Pen - "I know our disagreements, I'll respect them" but says he won't change programme
— Angelique Chrisafis (@achrisafis) May 7, 2017
Macron tells Le Pen voters: "I will do everything to make sure you never have reason again to vote for the extremes"
— Angelique Chrisafis (@achrisafis) May 7, 2017
Also coming up today
The French election is the main topic of conversation today, but the City will also be looking at some economic data including:
- 7am BST: German factory orders data
- 8.30am BST: Halifax’s UK house price index for April
- 9.30am: Sentix eurozone investor confidence report
We’ll be tracking all the main events through the day....
