The Influence of the French Election on the Market

Investors across the world gave a sigh of relief after Emmanuel Macron, the centrist candidate, won the first round of the French presidential elections. Macron defeated his anti-EU opponent, Marine Le Pen, in the runoff round of the elections. A Macron win was what every investor worldwide had been praying for. The 39-year old Macron is a former economy minister. He had never run for an elective post before. He is an ardent pro-Europe proponent known for his tolerant attitude towards refugees, Muslims, and immigrants.

According to Tom Hainlin, Ascent Private Capital Management’s international investment strategist, one of the year’s biggest risk events is finally off the table and people can now focus on the fundamentals while the European Central Bank continues to be accommodating.

Macron’s win was good news for investors but the elections still had already caused ripple effects on the markets. For instance, European stocks soared as the Euro climbed to break above $1.10 after the first round of the elections, its highest peak in six months. It was also the first time the Euro climbed that high since Trump’s election in the US. The common currency held at $1.09 while market participants prayed for the pro-European Macron to win.

The Dow Jones rose over 200 points on Monday after the Sunday elections with a gain of 1%. The Dow rose by 208 points to start trading at 20,756 points. The S&P climbed by 25 points opening at 2,374 points. The Nasdaq had a new all-time high rising 67 points to open at 5,977 points.

The chart below shows the Euro/Dollar trend since April 23, 2017.

Source: FactSet via http://www.cnbc.com/2017/05/07/french-election-markets-dodge-a-bullet-after-macron-defeats-le-pen.html

Market Reassurance

Market observers across the globe feared that a Le Pen win, similar to the President’s Trump’s victory, could have adverse effects on the European and by extension the global economy. As reported on Trade.Com business news, A Le Pen victory would have had serious implications on France’s membership to the Eurozone and the European Union. Despite Macron’s lead in polls prior to the first round of the election, there were fears of the far-left candidate Jean-Luc Melenchon pulling off an upset that could pit him against Le Pen rather than Macron in the final race.

Fortunately, there is an air of reassurance on the markets after Macron’s victory. The head of Sri-Kumar Global Strategies, Sri-Kumar, is reported to have told CNBC recently that the appreciation of the Euro is largely done because investors have now shifted attention from the elections to Macron’s plans on implementing reforms.

Elections have a way of surprising people and market trends. However, as Paul Simons, BMO Pyrford International Stock Fund’s portfolio manager puts it, the good news is that investors can rest assured that France is no longer anti-EU or potentially risky to the Euro.

The final outcome of the French elections has reassured investors that everything is back on track. The risks and fears that were previously associated with the people of France’s choice for president are now an issue in the back burner as Europe and the rest of the world focuses on stabilizing the market.

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