European Markets Leap on French Election Results -- 3rd Update
24 April 2017 - 10:35AM
Dow Jones News
By Riva Gold
European stocks and the euro jumped Monday as results from the
first round of French presidential elections eased investors'
concerns about the future of the eurozone.
The Stoxx Europe 600 climbed 1.9% in morning trading, led by the
banking sector, while France's CAC 40 index surged 4.2%, with both
indexes on track for their highest closes since 2015. The euro was
up 1.3% at $1.0867 after touching a five-month high on Sunday as
preliminary results were released.
Centrist Emmanuel Macron won the first round of this weekend's
vote in France, beating out leftist Jean-Luc Mélenchon and
conservative François Fillon. He will face off against National
Front leader Marine Le Pen, who campaigned to take France out of
the euro, in the second round on May 7. Polls, that were largely
accurate in predicting the first round outcome, suggest he is
likely to win.
"The market is ready to bet Macron will be the next president of
France, " said Nomura strategist Jordan Rochester. Investors plowed
into European stocks, the euro and a broad spectrum of so-called
risky assets Monday amid relief that uncertainty over France
appeared to diminish.
Eurozone bank shares, which had been seen as vulnerable in the
event of a victory for euroskeptic candidates Ms. Le Pen or Mr.
Mélenchon, jumped on Monday. Shares in BNP Paribas and Crédit
Agricole were up 8.9% and 8.5% respectively, while Italian lender
UniCredit added 9.9% and the wider eurozone banking sector was up
6.2%.
"European banks should be prime beneficiaries of policies that
are pro-growth, pro-stimulus, and not protectionist in nature,"
said Christopher Dyer, director of global equity at Eaton Vance,
noting the results should increase appetite for borrowing and
investment across Europe at a time when growth and earnings are
already picking up.
As results in round one largely matched pollsters' projections,
"it gives a lot of confidence to the market that we have a good
feel for the outlook in France and to a large extent puts to bed
the Frexit prospect, " he said.
He is currently holding an overweight position on European
stocks.
The gap between 10-year French and German government bonds
narrowed sharply to as low as 42 basis points from 66 on Friday,
according to Reuters, close to its lowest since late 2016. That gap
had widened in recent months as investors braced for the
possibility that France could be taken out of the euro.
The gap between German and Italian spreads also narrowed Monday
as investors had worried an upset in France could hurt fragile
economies in the eurozone in the event of a euro breakup. Italy's
10-year yields were last at 2.166% from 2.273% Friday, while German
yields were at 0.345% from 0.240%. French yields fell to 0.757%
from 0.883%. Yields move inversely to prices.
Credit spreads, European government bond spreads, and stocks in
Europe should do well as investors remove hedges put on ahead of
the vote, said Patrick O'Donnell, government bond portfolio manager
at Aberdeen Asset Management.
"There's still two weeks between now and the second round, but
broadly I think the market will move on and start thinking about
the next thing in Europe: Italy," he said.
Earlier, Hong Kong's Hang Seng Index added 0.4% while
Australia's S&P ASX 200 added 0.3% as investors broadly
returned to stocks after the French vote.
A pullback in the yen boosted Japanese stocks, with the Nikkei
Stock Average gaining 1.4%. The dollar was last up 1% against the
yen, while the euro was up 2.2% against the Japanese currency,
though observers attributed some of the common currency's jump to a
lack of liquidity.
Other risk-sensitive assets also notched sizable moves. Gold
futures fell 1.2% to $1,273.40 a troy ounce while 10-year Treasury
yields jumped to 2.306% from Friday's 2.234%.
Futures pointed to a 1% opening gain for the S&P 500.
Brent crude oil futures, which slid Friday to cap a 7% decline
for the week, rose 0.9% to $52.41 a barrel. Commodities also
benefited from a weaker U.S. dollar. The WSJ Dollar Index, which
tracks the dollar against a basket of 16 currencies, was down
0.3%.
Worries over potential government action to reduce market risk
sent Chinese stocks lower, however. The Shanghai Composite Index
was down 1.4%.
Ese Erheriene, Emese Bartha, Kosaku Narioka, Shen Hong and
Gregor Stuart Hunter contributed to this article.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
April 24, 2017 05:20 ET (09:20 GMT)
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