Markets muted as Macron success had been well flagged

Cantillon: big moves were after first vote in April which convinced investors of Macron win

Having been blind-sided by the Brexit vote and Donald Trump's election, financial markets were relieved that lighting did not strike a third time in France. Had Marine Le Pen been elected the reaction on markets would have been swift and brutal. However, the success of Emmanuel Macron had been so well flagged that reaction has been pretty muted.

The euro eased back having hit its highest level since November against the US dollar, and French equities also eased back. In truth, the big moves had come after the first round vote in late April, which convinced investors that Macron was going to win.

The reaction on the markets on Monday was evidence of the old market saying

“buy on the rumour, sell on the fact”.


However, this short-term impact is only part of the story. The victory of the middle-ground in France – and the Netherlands – has removed one key worry which has preoccupied investors for months. Le Pen’s intention to take France out of the euro – whether achievable or not – meant market turmoil if she had won.This risk had held back the euro and European equity markets .

Euro dramas may not be over – in particular investors remain nervous about Italy, where elections are due by next March – but one significant bullet has been dodged for the single currency.

Now attention will turn to the generally positive economic figures – such as the latest data for German industry – and the implications for growth and equity prices and for euro zone monetary policy. In particular, the debate on how quickly the ECB should withdraw its programme of massive bond-buying will now intensify. Like much else, this debate had been on hold as a Le Pen victory would have changed the game.

Locally, the way now looks clear for the AIB flotation to go ahead .

Political risk has not been removed from the financial markets. We still have the Brexit talks to come, and the uncertainties of the Trump presidency. But the French election results has removed one threat which has hung over markets.

Whether it is a turning point in European political fortunes is, of course, another question entirely.