The Euro Stoxx 50 Index was up almost 4% on Monday morning with, unsurprisingly, the French CAC 40 index up most. The S&P 500 VIX volatility index, a key measure of market fear, is also down sharply, suggesting US investors will join the celebrations later in the day.
The euro also rose against the dollar by some 1.7% to reach its highest level against the greenback since Donald Trump was elected US president.
The spread between French and German bonds reached its lowest level in months. French government bond yields decreased by 10 basis points to 0.77% to reach a record low for the year. German government bonds, on the other hand, increased by the same amount to 0.35%.
Pro-EU Macron, who won 23.9% of the vote against 21.9% for far-right runner-up Marine Le Pen, is now expected to easily win the second round of the elections on 7 May, since almost all remaining candidates endorsed his candidacy.
Very interesting election currently taking place in France.
— Donald J. Trump (@realDonaldTrump) April 23, 2017
Sceptics may point out that Macron’s political programme lacks detail and that his newly founded political movement ‘En Marche!’ is unlikely to win a parliamentary majority in elections scheduled for June.
“The uncertainty around the ability of Macron to gain a majority of seats in the Parliament to pass on his reforms will likely continue to weigh on the French-German government bond spreads in the next six weeks,” said Morgane Delledonne, fixed income strategist at ETF Securities.
However, the reason markets have been so buyoant this morning is not because they expect Macron will pass a wave of market-friendly reforms once in office.
The reason is that France is now likely to have a constructive, pro-European president for the next five years, who will contribute to political stability in Europe and will favour strong ties with Germany.
“The centrist pro-European Macron will not only help stabilise the European Union, but also help build stronger support mechanisms. Compared to Le Pen, who wants to take France out of the euro, he is by far the preferred candidate,” said Azad Zangana, European economist at Schroders.