French assets surged after a win for centrist Emmanuel Macron and nationalist Marine Le Pen in the first round of the nation\u2019s presidential election provided a market-friendly outcome.<\/p>\n
The CAC 40 index of shares jumped to its highest level since 2008,\u00a0boosted by gains in the country\u2019s banks, while the yield spread between French 10-year securities and benchmark German bunds narrowed to the lowest since January. A place for Macron in the second round avoids investors\u2019 nightmare scenario of a contest between the anti-euro Le Pen and the Communist-backed Jean-Luc Melenchon.<\/p>\n
The euro surged to its strongest level against the dollar since November before paring some of its gains\u00a0as focus shifted to a proposed U.S. tax cut.<\/p>\n
\u201cThe outcome of the second round remains unclear, but the \u201cMacron\u2014Le Pen\u201d configuration is seen as the most market friendly and this has been reflected in the investor reaction so far,\u201d said Vincent Juvyns, global market strategist at\u00a0J.P. Morgan Asset Management, which oversees $1.8 trillion globally. \u201cMacron is seen by many investors and policy makers as pro-EU, moderately reformist and fiscally responsible, so it is not surprising to see a relief rally in equity, foreign-exchange and fixed-income markets in response to his strong first round showing.<\/p>\n
Macron, a first-time candidate and political independent, had 23.8 percent in Sunday\u2019s election and National Front leader Le Pen had 21.5 percent, according to results from the Interior Ministry based on 97.4 percent of votes counted. The result lowers risk for the euro zone after a year of polling upsets and political turmoil\u00a0driving currency volatility, from the U.S. elections to Italian and British referendums.<\/p>\n
French 10-year bond yields fell 10 basis points to 0.84 percent as of 11:23 a.m. in London, after touching 0.83 percent, the lowest level since Jan. 18. The spread versus German bunds narrowed 19 basis points to 50 basis points, having earlier reached 47, the least since Jan. 26.<\/p>\n
Fast-money accounts were seen covering shorts in French bonds, with hedge funds selling in Treasuries, said one trader in Europe, who asked not to be identified as they weren\u2019t authorized to speak publicly.<\/p>\n
The euro climbed 1.3 percent to $1.0864, after reaching $1.0937. Hedge funds were seen fading euro gains above $1.09 and have more offers in place at $1.0975 and above $1.10, said traders in London, who asked not to be named because they weren\u2019t authorized to speak publicly. Europe\u2019s shared currency jumped 2.4 percent to 119.71 yen.<\/p>\n
The cost of insuring against losses on French banks\u2019 junior debt fell by the most in almost seven years, CMA data show. Credit-default swaps on Credit Agricole SA\u2019s subordinated bonds declined 44 basis points to 146 points, BNP Paribas SA\u2019s contracts tumbled 53 basis points to 155 points and those of Societe Generale dropped 54 basis points to 162 points.<\/p>\n
Investor attention will now turn to the second round of voting, for which Le Pen has trailed Macron in most opinion polls by a margin of some 20 percentage points. If Le Pen were to produce an upset and become president, the euro would tumble to a 15-year low to below parity with the dollar, in a reaction similar to that seen in the pound following the U.K.\u2019s Brexit vote, according to economists surveyed by Bloomberg.<\/p>\n
\u201cAll the polls are saying Macron\u2019s got a lead of 20 percentage points in the second round and that\u2019s held steady,\u201d\u00a0said Lyn Graham-Taylor, a rates strategist at Rabobank International in London. \u201cThe only slight concern is that about 40 percent of the first round voters went for the populist-type candidates between Le Pen and Melenchon.\u201d<\/p>\n
Source: Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"
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