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What Does Macron's Victory Mean for French Stocks, Euro?

Mon 25 Apr 2022 | 01:25 AM
Taarek Refaat

Following the victory of French President Emmanuel Macron's over rival Marine Le Pen, European markets and especially French one is going to react to this comfortable win.

According to exit polls by Reuters, eurozone bond yields, especially French government debt are likely to decline on Monday as markets take comfort in Macron's victory, while the benchmark 10-year bond yields, which hit a seven-year high last week, may fall 5-7 basis points in European trading.

In 2017, after Macron's election win, the euro rallied to six-month high against the U.S. dollar.

The euro currency however, is likely to rise. On Friday, it closed at $1.08,095, not far from a two-year low of $1.0758 in April, 14.

The euro recorded 1.0808 against the dollar, up 0.17% following the elections. 

"What we have learned form the last couple of years is that the polls are good but not completely reliable," said Marchel Alexandrovich, so, we are likely to get a relief rally, there would have been such a big upset if Le Pen had won," Said European economist at Saltmarsh Economics in London.

The yield premium demanded by investors to hold French 10-year bonds versus European benchmark Germany -- a key barometer of relative risks -- fell to a three-week lows around 42 basis points on Friday as investors anticipated a Macron win.

French stocks closed nearly 2% lower and the Euro Stoxx 600 Index closed 1.8% lower as rate hike tensions weighed on global equities.

French bank shares such as BNP Paribas, Societe Generale and Credit Agricole, which rallied after Macron's strong performance during Wednesday's main TV debate, may see further gains on Monday.

The euro, French bonds and stocks from national banks are among the assets that should benefit from Macron's potential win for a second term, according to money managers. The risks of a far-right nationalist and Le Pen victory were making investors nervous, with some predicting that European assets would suffer a sell-off similar to the euro crisis or Brexit.

"Markets should be relieved with a Macron win. We should see a moderate tightening in French and German bond spreads. French stocks are supposed to open slightly higher, but the Euro will be hit by the dollar's rally last week. Important news from Europe in the coming days is the increasing possibility of a Russian oil embargo," Kenneth Brooks, Currency Strategist, Societe Generale.

"We can see OAT bond yields shrink by 10 basis points and German bond swaps spreads narrow by 5 basis points. The Euro should move slightly higher but in the medium term as the impact of risk in the short term wears off. Macron now has more time to put in place more EU reforms, especially energy and more coherence in key sectors such as energy and defense," Kaspar Hense, Senior Portfolio Manager, BLUEBAY Asset Management,

"For French stocks, we could see a slight rally as well. But after the sudden reaction, the focus will shift to the European Central Bank and interest rate expectations, which will be the main driver of European stocks and bonds," Seema Shah, Chief Strategist, Principle Global Investors.

"Macron's victory is good news for Europe, as Macron is a great defender of European unity, the need for a unified EU foreign and defense policy, and plays a key role in European diplomacy in the current war in Ukraine," said Marlene Laruelle, Director of the Institute for European, Russian and EURASIAN Studies, George Washington University.


Frederic Leroux, Investment Team Member, Carmignac said that Macron's apparent victory is likely to reassure markets that the European dynamism will continue. In the short term, the main logical beneficiary from this election may be the euro, which was still flirting last Friday with two-year lows against the dollar.

"Since the European stock market has somewhat outperformed the US market in the past few days, there is no necessarily reason to expect a massive out-performance by French or European stocks against the US."

"The downside for the markets in this somewhat comfortable election could come from a quick decision in favor of a Russian oil embargo exacerbating inflationary pressures and an economic slowdown (stagflation scenario) in Europe."