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INSTANT VIEW 2-Investors relieved as Macron wins French presidential election
May 7, 2017 / 7:55 PM / 5 months ago

INSTANT VIEW 2-Investors relieved as Macron wins French presidential election

LONDON, May 7 (Reuters) - Emmanuel Macron was elected president of France on Sunday with a business-friendly vision of European integration, defeating Marine Le Pen, a far-right nationalist who threatened to take France out of the European Union, early projections from five polling organisations showed.

Below are reactions from economists, analysts, fund managers and other market experts.

STEPHEN MITCHELL, LONDON-BASED FUND MANAGER AT JUPITER ASSET MANAGEMENT:

”Voters elected for Emmanuel Macron’s pro-business policy proposals, which have the potential to unlock long-held-back investment and stimulate French markets.

”French voters have swung the pendulum back from Hollande’s paralysing tax increases to more conventional tax cuts and labour reform. Liberalisation of key industries now becomes a key discussion point heading into the June parliamentary elections.

”For Europe, this result – and Angela Merkel’s strong showing on Sunday in the Schleswig-Holsten state election - mean the core of Europe pulls closer together. Macron wants to improve relations with Germany, although he is not without protectionist tendencies.

“Markets had confidently discounted this result but French and Italian government bond yield spreads over Germany should narrow further. Equities will react positively – but mildly so – now awaiting to see if Macron in June has a new prime minister and parliament who share this young leader’s vision for revitalising France. Shorts had largely been covered after the first-round result.”

JAMES ATHEY, SENIOR INVESTMENT MANAGER AT ABERDEEN ASSET MANAGEMENT:

”In spite of the low overall turnout, the core of Le Pen supporters was nowhere near sufficient to overcome Macron’s broad-based, but by no means convincing, following.

”Markets will certainly take this as a positive, but given the moves of late had priced out most if not all of the political risk premium, I do not expect a huge move. The reality is that this was only one of the issues currently facing investors in French assets.

“We now must look to the parliamentary elections where it is by no means certain that En Marche! gets a majority. Without it Macron will need to form deal by deal coalitions making it far less likely he can pass his agenda without compromise.”

STEPHEN JEN, CEO OF EURIZON SLJ CAPITAL:

”It’s likely that the markets will take this news well. What has happened so far this year is that the most powerful driver of markets - global reflation – had been partly held back by disappointments from the Trump administration, and worries about the French elections.

”What the French election results show is that the will is still there in some countries in Europe to stay with the European project. However, the European project is being torn apart by several global trends, including trade globalisation, which I believe is incompatible with trade regionalisation. Europe must take this opportunity to undertake institutional reforms at the European/Brussels level, in addition to national level reforms.

“I see significant risks of an inexperienced politician and technocrat not being able to execute properly well-intended policies. We will see. It is important to give president Macron the benefit of the doubt.”

BILL STREET, HEAD OF INVESTMENTS FOR EMEA AT STATE STREET GLOBAL ADVISORS:

”Emmanuel Macron’s victory gives markets a much deserved breather from European politics. This result, combined with last week’s preliminary Greek debt agreement, will be enough to support a short-term relief rally. Looking forward, Macron only offers upside surprises.

“In a do-nothing scenario, we have the status quo of political paralysis, but with a favourable external environment and steady growth improvement. In the goldilocks scenario, Macron gets a working parliament and builds a partnership with Germany to launch meaningful reforms. That would deliver a substantial boost to markets by year-end, which is currently not priced in. In either scenario we could see renewed market pricing for accelerated European Central Bank policy normalisation, especially if the data continues to impress.”

PAUL LAMBERT, LONDON-BASED MANAGER OF INSIGHT‘S ABSOLUTE CURRENCY FUND:

”I‘m not sure there will be a huge reaction because most of the risk premium had been taken out after the first round. If you compare where euro/dollar should be versus bond spreads, it was pretty much where it should be.

“It will, however, be a relief to markets and in Europe it may calm markets about forthcoming events like the Italian election, where people appear to be nervous. We have now had the Dutch election, the Austrian election and the French election where people feared the outcome and it appears, on the whole, that Europeans are not as euro-sceptic as people feared. I’d expect a fairly muted response - some further euro strengthening, some further tightening of French bond spreads to Bunds but I wouldn’t expect a very big move.”

PHILIPPE WAECHTER, PARIS-BASED CHIEF ECONOMIST AT NATIXIS ASSET MANAGEMENT:

”The risk on markets is that people ‘buy the rumour, sell the fact’, as everyone has already been playing a Macron win in the past days.

”Next, markets will be watching the legislative elections, of course. The estimates so far have been for a majority, which would make things a lot easier for him. The French are legitimist, likely to give the elected president a majority.

”We’ll also be closely watching his pick of prime minister - that will be the most important in the near term. He hasn’t given any indication of who this may be, and they will be essential in order for him to implement his whole legislative project.

“It’s clear from these results that the participation was not very high, and French society is fragmented. In the immediate aftermath, one of Macron’s duties will be to reconcile France.”

DAVID VICKERS, SENIOR PORTFOLIO MANAGER, RUSSELL INVESTMENTS:

”When we were looking at Friday’s predictions for the euro, the average year-end forecast was $1.06 but there has been a lot of political overhang. Now that we’ve had this result, we think those forecasts will be moved higher as political risks are removed and (that) frees up the ECB to think more about unwinding quantitative easing in the face of stronger data.

”People have been unwinding tail risk since the first-round results, so Europe is one of the best-performing markets in the year-to-date having lagged previously.

”I expect spreads to be a bit tighter tomorrow and it will be interesting to see how duration reacts. The French/Bund spread has tightened already and further tightening could be limited. There is a risk now that bond yields could head higher from here.

“Macron does have to reconcile his country and I‘m not quite convinced we’ve fully reversed anti-establishment sentiment. Undoubtedly he is a pro-European, so that could cast a shadow over Brexit negotiations.”

OCTAVIO MARENZI, PARIS-BASED CEO OF CONSULTANCY OPIMAS:

“Emmanuel Macron will now be in a position to take a very uncompromising position with the UK over Brexit. This is a fight that will get ugly, with Macron trying to attract as much business as possible away from the UK, with a special focus on the financial services industry. Macron is going to lower corporate taxes, create incentives to invest in equities, and reduce red tape. This will make Paris a magnet to wrest business away from London. At the same time, he has made it clear that he opposes any special arrangement between the UK and the European Union post-Brexit.”

ROBERT TIPP, CHIEF INVESTMENT STRATEGIST AT PGIM FIXED INCOME IN NEW JERSEY:

“Assuming that following today’s vote we move towards a situation where Macron may actually be able to advance a reform agenda and make some progress on the fiscal side, that should provide a possible underpinning for French markets and some of that will spill over to other markets, especially in Europe. People have been bashing Europe for years, (saying) the euro zone is a failed experiment, but I think that countries that have stuck to the rules of the euro zone have succeeded.”

“There have been some anxious moments over the last few months with Austrian, Dutch and French elections and some uncertainty in Germany, but the bread appears to be falling with the buttered side up.”

VINCENT JUVYNS, GLOBAL MARKET STRATEGIST, JP MORGAN ASSET MANAGEMENT:

”First, the outcome was in line with expectations, to a bit higher. This was well priced into the market when you look at the CAC-40, bank stocks and the euro. So, it was well priced in after the first round. We’ve also had good macro economic data, which shows the euro zone economy is getting better.

”All of this points to some good performance in European assets, probably more in stocks than fixed income. (Bond) spreads have already tightened after the first round. But clearly the fact that political risk has reduced could see investors globally converging towards Europe.

“There are some nuances to bring - the country is divided and the turnout was low. It is a victory for Macron but he will need to win French hearts and win seats in the parliamentary elections to enact reforms.”

CRAIG ERLAM, SENIOR MARKET ANALYST, OANDA, LONDON

“It wouldn’t surprise me if we had a little bit of a relief rally on the back of this. The result was widely expected... It is one more potential political risk event pushed to one side and then it’s on to the next one because we have the Italian election some time in the next 12 months... It just goes to show that the disenchantment we saw in the UK and the U.S. with the political establishment is not as prevalent in Europe as it is elsewhere. So a bit of a relief rally but I don’t think there is going to be anything too extreme because markets had all but priced this in anyway.”

NAEEM ASLAM, LONDON-BASED ANALYST AT THINKMARKETS

“We are expecting the European markets to roar when traders start trading. This has eased a lot of concerns and investors will feel more comfortable in holding the riskier assets. The outcome of this elections result has also assured investors that the French debt ratings would not change either. Thanks to French people who do not like to surprise the people and what the polls predict is what we get in the results.”

”People and investors are feeling joyful because there will be no erection of barriers on the French border to restrict trade. ‘Frexit’ genie remains in the bottle and Emmanuel Macron has won the election. French voters have clearly expelled the populist surge which resulted in Brexit and carried Donald Trump to the White House.

“All eyes will turn towards the June parliamentary election because Macron needs to make sure that he has a strong hand in the parliament which will aid him to take swift moves.” (Compiled by Jemima Kelly; Additional reporting by Dhara Ranasinghe and Nigel Stephenson in London, Helen Reid in Paris, and Olivia Oran in New York; Editing by Susan Fenton)

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