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France's Election: Why the First Round Was Good for Markets

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Part 2
France's Election: Why the First Round Was Good for Markets PART 2 OF 4

Markets React to the First Round of France’s Election

Markets react

Markets were relieved as Emmanuel Macron, the independent centrist and pro-European, gained the lead in the first round of France’s presidential election. On the first day of trade after the election results from the first round were out, equity markets in the US, Europe, and Asia rose. Risk-on trade dominated investors’ sentiment. US companies with large exposure to Europe, like General Electric (GE) and Coca-Cola (KO), saw a relief rally.

Markets React to the First Round of France&#8217;s Election

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Europe 

European indices were the largest beneficiaries of risk-on trade. The French CAC 40 rose 4.5%, the Euro Stoxx 50 (FEZ) rose 3.8%, and the German DAX (EWG) rose 3.3%, respectively, on the first day of trading after the election results were announced. Most European and global indices were in the green. Macron’s lead indicated reduced anxiety for investors.

Why did the markets rally?

Macron has supported the idea that France (EWQ) should be part of Europe. His policies target to relax labor laws, reform the unemployment system, and induce discipline in government spending. Macron’s ideas represent stability compared to Marine Le Pen. Le Pen promised to put France first and to introduce a referendum on European Union membership—now termed “FREXIT.”

Markets rose with the hope that Macron would increase his lead as the second round approaches. If he wins the election, it shouldn’t jolt Europe’s current stability. The European Union has been on a slow path towards recovery. Any unexpected shocks could impact its economy and neutralize the ECB’s efforts. The ECB has been fighting to help the European Union stand on its feet.

In the next part, we’ll discuss how currencies and fixed income markets fared after the first round of France’s presidential election.

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