Markets Are Saying "Vive La France" After Election Results

The French stock market is close to a 10-year high as investors celebrate the strong performance of a pro-EU centrist.

Markets are rallying around the world on Monday after the pro-European Union centrist Emmanuel Macron gained the most votes in the first round of the French presidential election on Sunday.

Japan's Nikkei 225 index kicked off the celebrations, closing up over 1%, but the most optimism was in European markets. Macron's runoff challenger, Marine Le Pen, is an outspoken enemy of the euro single currency project and supports an overhaul of France's EU membership — and a referendum on whether France should leave the EU entirely.

The French CAC 40 stock market index closed trading up over 4%, while the Germany's DAX rose over 3%. The French index is now at its highest level in more than 10 years. European banks, which are particularly sensitive to the structure of the Eurozone, shot up, with one index of them rising almost 5%.

"Markets are trading in clear risk-on mode today," a group of PIMCO analysts said, referring to the increased appetite for risky stocks that comes when investors feel optimistic about the future. European banks, which are particularly sensitive to the structure of the eurozone, shot up, with one index of them rising almost 5%.

Le Pen regularly attacks Macron's links to global finance, calling him the "candidate of the oligarchs." At a National Front rally, one supporter chanted "Rothschild” in reference to Macron's former employer, New York Times columnist Roger Cohen wrote.

Election polls have consistently shown Le Pen having little chance of becoming the French president, but after the unlikely Brexit and Trump victories, investors weren't banking on anything before the votes were counted.

"While the result was expected, the prospect of a “left tail” outcome in which Le Pen significantly outperformed expectations had been a clear overhang on European assets," the PIMCO analysts wrote.

Markets were also behaving in a way that suggested less turbulence in the future. An index of the expected volatility of European stocks dropped over 35% today, while the volatility gauge for S&P 500 shares is down over 23%.

"Some of the angst around political stability in the European Union and Eurozone should dissipate" if Macron wins, as polls expect, in the second round of the election, JPMorgan Funds strategist David Kelly said in a note Monday morning.

The Euro rose against the dollar, trading at $1.09 up from $1.07 on Friday. The euro should keep gaining on the dollar, because it "has been underpriced owing to the election premium," strategists at Nomura said on Sunday night. (The note was titled "Macr-On vs Le Pen is risk-On: Because it’s his Toulouse").

The S&P 500 and Dow Jones Industrial Average were both up just over 1% by Monday afternoon.

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