Euro hits three-week high and French shares jump as election looms – as it happened

Graeme Wearden

from on 2017-04-20 16:05 (#2KPNP)

All the day's economic and financial news, as political events continue to dominate the markets

5.04pm BST

France's stock market has surged today as excitement mounts ahead of Sunday's presidential vote.

The CAC 40 outperformed other European indices to end the day 1.7% higher. Almost every share gained ground in a broad-based rally, led by financial companies and industrial firms.

European equity markets surprisingly calm. Can you spot in which country a fateful election will take place in 3 days? pic.twitter.com/ttekmJRQ7e

The stability we have seen in the markets today is a clear nod to the blasi(C) outlook that the trading community is holding with regards to this weekend's French election.

The first round is widely expected to result in a toss-up between Le Pen and Macron, but most expect voters to team up against Le Pen in the second round. The threat of an upset seems likely to be negated by the structure of the French democratic system.

For example, one of the latest French polls with a demographic breakdown shows two things: the older voters are more likely to vote, and they still overwhelmingly support Fillon. In fact no candidate carries as much support with any demographic group as Fillon does with the over 65s.

If either Le Pen or Mi(C)lenchon were to become the next president, there could be a big reaction in the markets. France's sovereign credit spread would probably surge as fears over her creditworthiness rose. And in our view, it is likely that the euro would fall. Unlike a potential "Grexit", a "Frexit" would pose an existential threat to the common currency. Even if investors thought that a "Frexit" wouldn't occur any time soon, the two candidates' views on monetary policy might be enough to make investors shy away from holding euros.

4.29pm BST

A reminder, from Sky News, of how close the French election looks:

4.09pm BST

The Economist has just backed Emmanuel Macron for the French presidency.

It argues that the centrist candidate can break the mould of French politics and push through reforms to improve the French economy.

Mr Macron is untainted, if only because he is a political outsider. He has never held elected office, though he was the appointed economy minister in the present government. His plans are less bold than Mr Fillon's, cutting only 120,000 public jobs and a60bn in spending, but an independent study rates them as equally free-market. Mr Macron is pro-business, but more subtle about it. Instead of abolishing the 35-hour week, he would help companies work around it. Rather than raise the retirement age, he would unify the country's 35 pension schemes, eventually doing more to enhance labour mobility.

Mr Macron is more outward-looking, too. He backs recent EU free-trade deals that Mr Fillon rejects. He is more likely to be able to work with Germany to strengthen the governance of the euro. He is socially liberal, whereas his opponent, close to Roman Catholic traditionalists, opposed gay marriage and wants to limit gay adoption. Mr Fillon would impose immigration quotas and end sanctions against Russia; Mr Macron exhorts the French to live up to their values.

4.03pm BST

The Economist's Tom Nuttall tweets:

Our cover this week. pic.twitter.com/GynxZc4Ve6

3.58pm BST

Encouraging news. Consumer confidence in the eurozone has risen to a 25-month high.

It's another sign that the European economy is strengthening.

April Eurozone Consumer Confidence Strengthens To -3.6, Close To 9-Year Highshttps://t.co/3TUbrPIUq7 $EURUSD #forex #forextrading #Eurozone pic.twitter.com/juhwiAeqwe

3.26pm BST

Back in Washington, Christine Lagarde has also taken a swing at Germany's trade surplus, saying the country's external imbalances should be addressed.

.@Lagarde on Germany: we have consistently said external imbalance should be addressed. Part of surplus is justifiable, but not all of it. pic.twitter.com/NUSGAqLh14

3.12pm BST

The latest unemployment figures from America show that the US labo(u)r market remains pretty strong.

The number of new applications for jobless benefit rose by 10,000 last week, to 244,000 - well below the 300,000 threshold that shows a healthy jobs market.

Number of people collecting unemployment checks hits 17-year low, jobless claims show https://t.co/nkGKnwGPFY pic.twitter.com/HO7CLiQBkq

2.59pm BST

An upbeat-sounding Christine Lagarde has launched this week's Spring Meeting by calling for a new push for innovation, closer trade ties and a clampdown on tax evasion.

.@Lagarde: Spring is in the air and the economy as well. Finally seeing economy picking up momentum https://t.co/uWRsfqSKPZ #IMFMeetings

We need to make sure momentum is sustained and growth is shared more equitably- .@Lagarde at presser

.@Lagarde at #IMFMeetings: We need to reinvigorate productivity by boosting trade and innovation

.@Lagarde: stronger cooperation between countries can help reduce imbalances, reduce tax evasion, progress toward SDGs pic.twitter.com/5xbiDn9Hr8

.@Lagarde: Growth potential still needs a lot if work; policymakers need to focus on this area.

2.35pm BST

The Greek government is hoping to make progress in its negotiations with creditors at the IMF Spring meeting this week.

2.06pm BST

Over in Washington, world finance ministers and top central bankers are gathering to discuss the state of the global economy.

"These meetings will all be about Trump and the implications of his policies for the international agenda," said Domenico Lombardi, a former IMF board official who is now with the Centre for International Governance Innovation, a Canadian think-tank.

He added that IMF Managing Director Christine Lagarde is aiming to "socialize" the new administration to the IMF's agenda and influence its policy choices.

2.05pm BST

Every politician should have a party trick, and Emmanuel Macron has just tweeted his....

Voili. pic.twitter.com/KSd8XHgGtY

1.55pm BST

Here's a lookback at the Harris opinion poll over the last couple of of months:

France update 4: New @harrisint_fr poll shows"
Macron 25 percent
Le Pen 22
Fillon 19
Mi(C)lenchon 19https://t.co/Y6yUJq46e1 pic.twitter.com/pAPfrKkDc8

1.10pm BST

The pound is still having a solid enough day, up 0.2% at $1.28.

That's more than two cents higher than Monday morning, before the snap election news. But Robin Bew of the Economist Intelligence Unit isn't impressed:

Uptick in pound driven by hopes bigger Tory majority = softer #Brexit. But small beer compared to June slide. #UK still greatly marked down

1.02pm BST

Some analysts think investors are too relaxed about the French election.

The FT's Mehreen Khan explains:

"Markets are unprepared for the worst," notes Athanasios Vamvakidis at Bank of America Merrill Lynch.

"The worst outcome for markets is if Le Pen and Mi(C)lenchon are in the second round, in our view, as markets could start pricing Frexit risks"

Investors are still too complacent over the risks to the euro from France's four-horse election race, warn analysts https://t.co/72HUGHuKwg pic.twitter.com/V61rLzjNHZ

12.48pm BST

Fillon's late revival in the polls could increase the chances that Marine Le Pen fails to win a place in the final run-off.

That could trigger a surge in the euro and in share prices, believes Kathleen Brooks of City Index. She says a Macron-Fillon playoff would be the most 'market-friendly' option.

A win for Macron with Fillon in second place would restore faith in centrist politics, which has been eroded ever since last year's Brexit vote in the UK and Trump's triumph in the US Presidential election. The eradication of the Far Left and the Far Right candidates in the first round would likely see a collective sigh of relief that it is politics as usual in France. This combination for the second round could unleash a surge in the Cac, a sharp drop in French bond yields and a decent move higher in EUR/USD back towards 1.10, we could also see EUR/GBP recover back towards 0.8570 - a cluster of key resistance levels.

Overall, there is a chance that the market has been wrong-footed once again by the polls, and Le Pen is not guaranteed a spot in the second round. If we are correct, then the political premium that has kept the euro range bound in recent months could evaporate, allowing the single currency to stage a decent rally on the back of a victory for the two moderate, pro EU candidates on Sunday night.

12.07pm BST

One of the more surprising elements of the French election is Francois Fillon's recent revival.

Born in the traditionally Catholic Sarthe department west of Paris, Fillon is the son of a history professor mother and solicitor father. With Penelope, whom he met in Le Mans when she was a student on a year abroad, he has raised five children in a 12th-century chateau.

He has abstained or voted against laws on equality between men and women and same-sex marriage and is personally opposed to abortion, though he would not try to repeal the 1975 law that legalised it in France.

11.53am BST

The candidates to become France's next president have been campaigning for months, including a major TV debate earlier this month.

But many voters are still uncertain of who they'll vote for, and their choices could decide the election.

The French election looks very close. Although Macron and Le Pen are expected to make it to the second round, all four candidates are close and 30% of voters are said to be still undecided as ahead of Sunday's vote. Two interesting weeks ahead in France."

11.16am BST

The "nightmare scenario" for global financial markets is second-round duel between the equally sharp-tongued Le Pen and Melenchon, says Associated Press's John Leicester.

Victory for either could, in the wake of the Brexit vote, possibly deliver a knockout punch to the EU ambition of ever-closer union among the peoples of Europe because both want to tear up agreements that bind together the 28 EU states.

Melenchon says "the Europe of our dreams is dead." He proposes "disobeying treaties from the moment we take power" and negotiating new EU rules followed by a referendum on whether France should leave the bloc it helped found. "We either change the EU or quit it," Melenchon's manifesto says.

10.51am BST

Paris's stock market is on track for its best day since the start of March.

The FTSE is weakening once more this morning, as the pound continues its ascent in the wake of Theresa May's decision to call a snap election in just seven weeks.

To many the appreciation of the pound seems counter-intuitive, yet the prospect of a strengthened Tory majority means there is hope that this election could be good for the UK in Brexit negotiations.

10.31am BST

M&S isn't the only UK retailer shutting stores.

Debenhams has announced plans to close up to 10 shops, and 11 warehouses, as new CEO Sergio Bucher gets to grips with its "tired and old" estate.

10.12am BST

Newsflash: The government has announced the sale of Britain's Green Investment Bank to Australian bank Macquarie in a 2.3bn deal (as my colleague Adam Vaughan reported overnight).

It's an unpopular move with environmental activists, who question Macquarie's commitment to clean energy.

"At a time when the government should be shoring up low carbon industry for post-Brexit Britain, they have given away one of our key tools for advancing green technologies. The hole left by the Green Investment Bank will slow our transition to a clean energy system, set us back on reaching our climate targets, and mean more of the jobs from new sectors will go elsewhere.

If the government picks up its pace, the UK could be a world leader in renewable and green technology. But selling a great British success story, which levered private money into eco-projects, to a controversial Australian bank known for asset-stripping, is a disaster. We need investment in the booming clean technology industry in the UK, for skilled jobs, fairer bills and a healthy economy to see us through the next uncertain few years and in to the future."

Breaking: 2.3bn sale of Green Investment Bank confirmed - good week to bury one of the most controversial privatisations of recent years.

9.56am BST

The euro is climbing higher, now up 0.5% to a new three-week high of $1.077.

That's partly due to general dollar weakness, as well as that French opinion poll suggesting a win for Emmanuel Macron.

9.42am BST

Retail news: Marks & Spencer is shutting six UK stores, but promising staff that they'll be offered new positions elsewhere.

M&S is to close 6 stores: Monks Cross, Portsmouth, Slough, Warrington, Wokingham and Worksop promises 380 staff 'guaranteed' redeployment

On the upside M&S also says 36 new stores to open over next six months creating 1,400 new jobs

9.37am BST

European stock markets will probably fall sharply if the French election delivers a shock result.

Marketwatch's Sara Sjilin explains:

And here are the two-way risks: A win for either Le Pen or Melenchon would spark a selloff in risk assets and drive French and European equities down 5%-10% by the end of June, Citi said. However, if Macron or Fillon secures the presidency, stocks in Europe could see a 10%-20% rally before the end of the year, they said.

"Investors (and French voters) are getting worried about a 'nightmare' scenario" - French election is this Sundayhttps://t.co/DJFYKMNP29 pic.twitter.com/KPV1XOSOT7

9.15am BST

The pound is also strengthening this morning, up half a cent at $1.2825 against the US dollar.

Reuters' Jamie McGeever has spotted signs that investors are more confident about UK assets.

Investors more sanguine on Brexit than at any point since Sept when May first adopted hard Brexit stance. Investors now buying GBP and gilts pic.twitter.com/kKQ3ipubIS

9.05am BST

Marine Le Pen's best hope of victory would come in a run-off against former prime minister Francois Fillon, argues Antonio Barroso of Teneo Intelligence.

Barroso believes that many centrist and left-leaning voters might find this choice underwhelming, and not participate in such a second round scenario.

The worst-case scenario in terms of a potential Le Pen victory is a runoff between Fillon and the leader of the National Front. This is especially the case considering the former PM's recent "rightist turn" after he suggested he would include members of an ultra-catholic organization in his administration.

Combined with his frequent attacks on the judiciary, this will only make it more difficult for Fillon to credibly moderate his positions in between rounds. The risk is that center-left voters decide to stay at home on 7 May, allowing Le Pen to be elected by voter neglect rather than by voter endorsement.

8.54am BST

This chart confirms that traders have been anxious about the French elections, and the prospect of a eurosceptic winner:

As Sunday's 1st round of French election nears, one measure of euro volatility is well on track for its biggest weekly jump on record pic.twitter.com/As4mdjhyEZ

8.47am BST

Tactical voting will probaly keep Marine Le Pen out of the ilysi(C)e Palace, argues Kit Nicholl, country risk analyst at IHS Global Insight:

In a scenario where Le Pen is pitted against Fillon, or more likely, Macron, voters from the moderate left and right are likely to unite in a so-called "Republican front", voting tactically to keep the FN out of power.

A Le Pen victory is therefore unlikely but still remains possible, particularly as abstention rates will also play a big role.

8.37am BST

The euro has hit its highest level since the end of March this morning.

The single currency gained 0.3% against the US dollar to $1.074, after a new opinion poll suggested centrist candidate Emmanuel Macron will win the French election.

Il ya de nouveau UNE VRAI DYNAMIQUE MACRON "BERCY" Sondage HARRIS AUJOURD'HUI comme BVA hier et assuri(C)ment ODOXA demain Mais IFOP a du MALai pic.twitter.com/7HwMo3XuqW

#FRANCE'S MACRON TO BEAT LE PEN IN 2ND-ROUND 66% VS 34%: HARRIS - BBG

8.20am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Political issues continue to occupy the market's attention today.

Volatility in the euro has peaked at its highest since before the June referendum as markets weigh the prospects of either Marine Le Pen or Jean-Luc Melenchon - or both - making the second round. The killer scenario for the euro would be if both candidates make the May 7^th runoff as it would raise the very real possibility of France exiting the euro.

Current polling gives the nod to Macron and Le Pen, with Macron eventually winning. But with four candidates polling around 20% there is every reason for caution. We're looking at contingency plans in the event of a Le Pen-Melenchon runoff as this would spark a big selloff in the euro and French government bonds, as well as bank stocks.

Ah yes, that 'softer' Brexit... pic.twitter.com/Rw7YDe5nKO

Good morning. Asia stocks strengthening on short covering into French election this weekend. Strong Japan trade data props up stock markets. pic.twitter.com/2ADGZyzBq0

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