LONDON Europe's capitals breathed a sigh of relief, financial markets rallied, and France has offered a reprieve to the edifice of Western liberal democracy under attack from authoritarian leaders pushing a narrow view of the nation interest.
But now the hard work really starts and, after a string of failed presidencies from both left and right in France, Macron really must deliver. That will mean firstly getting a workable majority in the June parliament elections and then not squandering that majority in the first years as his predecessor Francois Hollande did.
Early announcements to watch will be the appointment of a caretaker prime minister and cabinet in the coming days that will give a clue as to the regeneration of French politics that Macron has promised. It will also be interesting to see how many protesters against liberal economics can be drawn onto the streets today by the hardline CGT union, benefiting from the annual V-E Day public holiday to call a rally.
Angela Merkel's CDU meanwhile soundly beat the rival SPD in a state election in the northern Schleswig-Holstein of Germany, raising prospects that Europe's most powerful leader will get re-elected in a national election in September. Her office has congratulated Macron on his win and preparations to give a new Franco-German elan to European integration are already under way.
With the euro zone economy doing well and Greece having averted a funding crunch this summer, the most immediate source of political risk in Europe emanates from Italy and the anti-EU drive that has coalesced around the 5-Star anti-establishment party. There, Matteo Renzi's comeback bid after resigning as Italy's prime minister looks on track after he easily regained the leadership of the ruling Democratic Party (PD) last week.
MARKETS AT 0655 GMT
After rallying hard into the French vote on expectations of a sizeable win for centrist Macron, global markets will find it hard to squeeze too much more out of the relief trade per se.
But what confirmation of Macron’s near 30-percentage-point defeat of far right, anti-euro candidate Le Pen does allow investors to do is focus squarely on the underlying economic and policy picture once again and that story is one of a relatively robust euro zone expansion, double-digit European earnings growth and a European Central Bank that may now see the dissipation of French political risk as a reason to signal further tapering of its massive bond-buying monetary stimulus next month.
It’s here, rather than the many ‘ifs and buts’ of how Macron will now govern, that broader European and global markets will likely dwell. So while the euro has slipped back a touch after hitting six-month highs against the dollar, five-month highs against the Swiss franc and one-year highs against Japan’s yen on the vote last night, the pullback on the hoary old ‘buy the rumour, sell the fact’ argument has been fairly limited. The euro is hovering just about $1.0980 as Europe kicks in, having set a high of $1.1022 overnight.
European equities are expected to extend last week’s strong rally with further gains of up to 1 percent. The 10-year French/German sovereign debt spread has fallen to a six-month low of 33 basis points, while the Italian equivalent fell to a two-month low of 172 basis points.
As attention turns now to Germany’s national election in September, results from Sunday’s state election in Schleswig Holstein showed a decisive win for Chancellor Merkel’s conservatives. Data out early Monday showed German March industrial orders up an expected 1 percent. U.S. stock futures are a touch lower after an early post-French election pop higher on Sunday.
Post-holiday Japanese stock markets are more than 2 percent higher in catch-up to last week’s global rallies and Seoul is up 2 percent too. Shanghai was half a percent lower after Chinese trade data showed the annual gains April exports and imports coming in lower than forecast but with a wider monthly trade surplus than expected – which may flatter Q2 growth forecasts.
Elsewhere, Brent crude oil prices continued after last week’s sudden and sharp selloff and were trading at $49.50 early Monday. Ten-year U.S. Treasury yields remain firm above 2.35 percent.
(Editing by Andrew Heavens)