Euro falls, European shares set to open lower despite Macron’s election win

By Dhara Ranasinghe, Saikat Chatterjee and Alun John

LONDON/HONG KONG (Reuters) -The euro failed to realize a lift from pro-EU centrist Emmanuel Macron re-election as France’s president, and European share futures fell, as traders’ fears about international progress outweighed their aid about far-right candidate Marine Le Pen’s defeat.

Pan-region Euro Stoxx 50 futures fell 1.75% in Asia buying and selling on Monday morning, alongside falls in U.S. futures and Asian shares. [MKTS/GLOB]

The euro, which initially opened larger, fell 0.34% in opposition to the greenback to $1.07725, nearing its two 12 months low hit final week, though it rose to a one month excessive on the pound.

With 97% of votes counted, Macron was on the right track for a stable 57.4% of the vote, inside ministry figures confirmed.

He’s the primary French head of state in twenty years to win a second time period, promising continuity within the bloc’s second largest economic system at a time of heightened uncertainty unleashed by the warfare in Ukraine, surging inflation and the prospect of the speedy withdrawal of central financial institution stimulus.

Going into the election, traders had been involved about Macron’s comparatively small ballot lead over Le Pen, who favoured nationalising key industries, slashing taxes and chopping French contributions to the EU funds.

Nonetheless, regardless that this final result didn’t materialise, there have been few indicators of a aid rally for French and European belongings in Asian hours.

“There’s a lot for markets to fret about in the intervening time and that’s trumping the impact of Macron’s win,” mentioned Rob Carnell head of analysis for Asia Pacific at ING, pointing to U.S. shares’ poor efficiency on Friday and declines in U.S. futures on Monday, the COVID-19 state of affairs in China and the absence of indicators of a decision to the warfare in Ukraine.

French shares closed nearly 2% decrease on Friday, and the Euro Stoxx 600 closed down 1.8% as rate-hike jitters weighed on international shares.

“Macron had additionally prolonged his ballot lead within the days earlier than the election so the result was not an enormous shock,” Carnell added.

Bond markets have been already transferring upfront of the election, and the yield premium demanded by traders to carry French 10-year bonds versus European benchmark Germany — a key barometer of relative dangers — fell to a three-week lows round 42 foundation factors on Friday as traders anticipated a Macron win.

Nonetheless they could possibly be set to maneuver additional after they begin buying and selling afterward Monday.

Kasper Hense, a senior portfolio supervisor at BlueBay Asset Administration, mentioned he anticipated the French/German yield hole to maneuver 10 bps tighter, noting BlueBay had gone brief Italian debt on a view that markets have been “a bit complacent” forward of the election.

“Whereas over the medium time period there can be some strain on peripheral bonds, the instant market response can be certainly one of aid,” he mentioned.

French banks akin to BNP Paribas, Societe Generale and Crédit Agricole, which rallied after Macron’s sturdy exhibiting throughout Wednesday’s key TV election debate, might additionally see extra good points on Monday.

However within the medium time period there are many dangers for traders.

“For French shares, we might see a small aid rally. However after the knee jerk response, the main focus will flip to the ECB and the speed outlook and that can be a key driver for European shares and bonds,” mentioned Seema Shah, chief strategist at Precept International Buyers.

European Central Financial institution officers are eager to finish bond purchases on the earliest alternative and lift rates of interest as quickly as July, sources aware of ECB pondering informed Reuters.

Focus may even shift to France’s June parliamentary elections. To implement reforms, the brand new president might want to safe a parliamentary majority.

That election could have a major bearing on future coverage, so traders with particular French publicity might bide their time earlier than taking a view.

“Is the result of this election clear sufficient to anticipate that the June parliamentary elections will give the President a majority that can enable him to implement his pro-business and pro-European insurance policies desired by the markets?” mentioned Frederic Leroux, a member of Carmignac’s funding crew.

“It appears harmful at this stage to take it with no consideration.”

(Reporting by Dhara Ranasinghe and Saikat Chatterjee in London, extra reporting by Alun John in Hong Kong; Modifying by Sujata Rao, Susan Fenton and Philippa Fletcher)