Stock markets slip back and euro dips despite France rejecting Le Pen - as it happened

Graeme Wearden (until 2pm) and Nick Fletcher

from on 2017-05-08 16:47 (#2NPVQ)

Emmanuel Macron's victory in the French presidential election has reassured investors, although profit taking has pushed shares down

5.47pm BST

An early burst of enthusiasm as Emmanuel Macron won the weekend's French presidential election saw the country's stock market hit a new nine year peak. But this soon wore off, as investors either took profits or decided Macron had done the easy part by winning and now faced the problem of getting his proposals agreed. Jasper Lawler, senior market analyst at London Capital Group, said:

The French election turned out to be a buy the first round, sell the second round affair. French shares fell on Monday with the CAC index down significantly more than other European equity benchmarks. It's not disappointment in Macron, who is widely seen as business-friendly but just that the market saw this result coming a mile away.

5.00pm BST

The gains in the oil price on hopes of an extension to Opec's production cuts has now been reversed:

In spite of all the OPEC jawboning the price of oil is slip sliding away again with Brent Crude Oil below US $49

4.51pm BST

The volatility index - the so-called fear index - has fallen again, in a sign of how calm the markets are at the moment:

VIX drops to lowest level since Feb. 14 2007 https://t.co/wnBLQbXENZ pic.twitter.com/pbqF5zdGqV

4.28pm BST

Over in Greece it has been officially announced that legislation of further creditor-demanded fiscal measures will take place next week. News of the vote came as Greek politicians welcomed Emmanuel Macron's election as France's new president. Helena Smith reports from Athens:

After finally agreeing to the controversial policies, the Greek government will go through the process of legislating them in parliament next week, according to the assembly's president Nikos Voutsis. As of Monday 15, MPs sitting on an array of committees will discuss the measures, which range from pension cuts and tax increases to liberalising Sunday trade, before they are brought before the 300-seat chamber for debate on May 17 and then put to the vote on Thursday 18.

Voutsis, who represents the ruling Syriza party, predicted that the policies would pass easily with no defections from the leftist party or its junior partner, the right wing Independent Greeks, despite a massive turnout at the weekend by retailers protesting against the prospect of shops opening on Sunday.

Counter measures negotiated by the government offsetting losses in the event of a primary budget surplus target being achieved were also likely to be supported by opposition MPS who have otherwise threatened to reject the measures, he said. The policies come into force from January 1 2019.

Legislation is crucial to eurogroup finance ministers agreeing to disburse further loans from Greece's third, a86bn bailout on May 22. Athens faces debt repayments of a7.5bn in early July - dues it could not honour without the emergency assistance.

The Greek prime minister Alexis Tsipras tweeted: "Emmanuel Macron's victory is a breather for France and all of Europe. I am certain we will closely cooperate to change Europe's course; to again inspire its peoples, so as not to relive the nightmare of the extreme right."

Later in the day deputy prime minister Giannis Dragasakis held talks with the French ambassador to Athens to highlight the issue of debt relief and Emmanuel Macron's support of it for the debt-stricken country.

4.13pm BST

More on oil, from Chris Beauchamp, chief market analyst at IG:

On an otherwise dull afternoon, we have oil producing nations to thank for providing a degree of interest.

Saudi Arabia, the only voice that really matters, has joined the chorus of those hinting at more production cuts to come, which has helped to keep oil steady above $46 per barrel.

3.40pm BST

Can also say markets are more relieved that #LePen lost than #Macron won. France still does well at opinion polls since the late 60s

3.16pm BST

On the market reaction to Macron's victory, Michael Hewson, chief market analyst at CMC Markets UK, said:

While the sense of relief is palpable amongst European leaders, markets have moved on and shifted their focus to the likelihood that the new French President will be able to enact his reform program, one of which is to pledge to reduce unemployment to 7%, a level only seen once in the last 30 years, at the beginning of 2008.

Even if his party does well in next month's French assembly elections, getting a majority is likely to be a tall order. Looking at the votes cast gives a sense of the scale of the task, with Mr Macron getting over 20m votes, while Marine Le Pen got just over 10m.

3.14pm BST

US markets have followed the pattern established in Europe.

Open higher on relief that Emmanuel Macron won the French presidential election, then fall back on profit taking and concerns about whether he will be able to successfully undertake his proposed reforms.

2.46pm BST

Meanwhile oil has moved back into positive territory on further talk that Opec's production deal could be extended beyond June.

So OPEC talks as it currently stands citing sources...

Extend 6-months

OR

Extend by 9-months

OR

Extend 12-months according to 1 source

2.45pm BST

US markets have opened in mixed fashion, with the S&P 500 and Nasdaq Composite both hitting record highs.

The two indices opened around 0.2% higher, but the Dow Jones Industrial Average on the other hand is current down 24 points or 0.12%.

2.13pm BST

Elsewhere oil prices are edging down despite Saudi Arabia's energy minister suggesting Opec would extend its current production cuts until the end of the year, and perhaps longer.

The agreement, designed to support the flagging oil price, was due to be in force until the end of June, but Khalid al-Falih told a conference in Malaysia:

The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average.

Based on the consultations I have had with participating members, I am rather confident the agreement will be extended into the second half of the year and possibly beyond.

Saudi oil minister Al-Falih has indicated that oil production cuts would likely be extended, which makes sense given the weak oil price.

There is increasing expectation that the summer driving season will draw down inventories putting pressure on oil prices. Yet it's unlikely that OPEC's supply side efforts will transfer into the broader crude markets. US oil producers have become extremely nimble in reacting to volatility in demand.

2.00pm BST

The WSJ's Mike Bird nails it:

Worst relief rally ever

1.19pm BST

European stock markets have been enjoyed steady gains in 2017, with many indices up around 10% since 1 January.

But ironically, Macron's victory might bring an end to the rally, argues Steen Jakobsen, chief economist at Saxo Bank.

We have been very positive on both the euro and European (mainly French) equities of late. Now, however, it's time to go neutral on both as Macron's real work will be vastly different from merely winning the presidency.

The one thing that France needs, of course, is labour market reform. A 10% unemployment rate is too high to create sustainable new growth and for Macron to succeed, he needs to "help" Le Pen's voters - the disenfranchised, the anti-globalisation crowd who are afraid of worse to come.

This is a formidable task, but Macron's timing is good. Europe has been through an "internal devaluation", so labour market reforms and a focus on creating instead of preserving jobs should do wonders for France.

12.49pm BST

It's lunchtime in the City, but anyone expecting to celebrate a booming morning has been disappointed.

A classic reaction in the markets to the outcome of the French elections. It was widely expected that pro-euro centrist Emmanuel Macron was going to become the new President of France and that he would beat the euro-sceptic Marine Le Pen by a wide margin. And so it proved.

Given that possibility, Friday's sharp moves in some markets - including the DAX future, which surged disproportionately higher - looked bizarre to me. Unsurprisingly, the German index has been quick to undo that move at the start of this week as speculators sold their bullish positions, some at healthy profits.

12.26pm BST

Rating agency Fitch has also opined on the French election, and like Moody's it believes Macron faces a tough battle.

They point to the relatively low turnout, and the high number of abstentions (more than voted for Le Pen!), adding:

A challenge for the incoming administration will be to address the concerns that have led to rising support for populist and Eurosceptic parties, such as high unemployment (around 10% in France versus 4% for 'AA' peers), while enacting potentially unpopular economic and fiscal reforms and maintaining a commitment to EU integration.

Final results: Macron 66.1%, Le Pen 33.9%
That's 20.8m votes for Macron, 12.1m abstentions, 10.6m votes for Le Pen, 4.1m spoiled/blank votes pic.twitter.com/8hb7jxRlon

12.06pm BST

Emmanuel Macron's economic vision includes tax and spending cuts, deficit reduction, a shrinking civil service and a deregulated labour market.

All things which might prove unpopular with sections of French society, judging by past history.

It's not true that we don't know Macron's programme - here are some key points. What we don't know is whether he can implement it. pic.twitter.com/onv74tPBzh

11.59am BST

There's another reason for the lacklustre market reaction today - a stronger European economy could lead the European Central Bank to tighten monetary policy sooner.

The ECB has been pumping billions of euros into the eurozone economy for a few years now, through its bond-buying stimulus programme. Inflation has now picked up, and growth prospects look more appealing....so investors face the prospect that the tap of cheap money could be turned down.

Although [ECB president Mario] Draghi has clearly and forcefully defended the ECB's current accommodative stance, that view is drawing more attention and criticism given improved eurozone economic performance, reduced financial tensions and, perhaps now, less political risk.

Any hints the ECB is contemplating a shift to a neutral bias could provide the impetus for the next rise in global bond yields, a narrowing of spreads between US and eurozone bond yields, and a stronger euro."

11.31am BST

The euro continues to slide back from last night's highs, and is now down over half a cent.

#EURUSD paring gains on post-#Macron profit taking. at 1.0935

11.19am BST

Back in the UK, there are fresh signs that the once-buoyant property market is cooling.

Halifax has reported that prices fell by 0.1% in April. That took the average price down to 219,649, in April from December's record high of 222,190.

10.56am BST

In an encouraging signal for Europe, investor confidence across the eurozone has hit its highest level in almost a decade.

Research group Sentix's monthly measure of investor morale jumped to 27.4 in May, sharply up on April's 23.9.

"Investors are obviously expecting a decrease in political uncertainties in the euro zone."

10.29am BST

Credit rating agency Moody's reckons Emmanuel Macron's economic plan should be positive for France's credit rating, which is currently just Aa2, the third-highest rating available.

However, Moody's is also worried that France could face five years of "policy drift", if the next president struggles to win support for his policies.

"The ability of France's policymakers to design, and successfully implement, policies which enhance growth and support fiscal consolidation over time will drive the trajectory of France's rating and outlook over the medium-term.

The new president will face tests in all of these areas."

9.58am BST

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, agrees that Macron's victory has brought relief rather than jubilation to the financial world.

"Markets would have been seriously upset by a Le Pen win, which could have called into question the integrity of the Euro area, setting off financial strains that would make Brexit look like a walk in the park.

"Macron's first challenge is to attract political backing, to form a government that allows him to implement the reforms France needs, in order to bring down unemployment and solidify support for the European project. However, June's parliamentary elections don't carry the same near term risks for financial markets as the presidential election.

9.34am BST

Investors around the globe will be relieved that the eurozone's second largest economy isn't being handed to an anti-establishment candidate like Marine Le Pen, says Jaisal Pastakia, Investment Manager at Heartwood Investment Management.

So why aren't markets really roaring?

"Emmanuel Macron has won convincingly against Marine Le Pen in this weekend's election.

In anticipation of a Macron victory following the first round two weeks ago, European equities have bounced and the euro has rallied against the major currencies. Much was priced into markets before the event, but we remain positive on a medium term view. Of course, questions remain around what Macron can actually achieve over the longer term. A lot will depend on the outcome of the parliamentary elections in June and the mandate he can secure. The risk is France gets a fragmented parliament.

For a classic case of buy the rumour, sell the news, look no further than French stocks today. #Presidentielle2017 https://t.co/iOExsQdB9s pic.twitter.com/QaxqKX3fqF

1. Buy the rumour 2. Sell the news 3. Find a new rumour

Could some of the people saying Macron's win is good for risk assets please go out and buy some?

New York financier, late-40s, recently split from firebrand French nationalist, seeks new reason not to buy European equities.

9.06am BST

The euro has also lost its oomph, and has just dropped 0.4% to $1.096, away from last night's six-month high.

Darren Ruane, Head of Fixed Interest at Investec Wealth & Investment, suspects that some traders are banking their winnings.

"Given that Macron's election win was fully expected by markets, early price movements show a small degree of profit-taking.

8.59am BST

Market, eh? After a brief Macron bounce, the main European indices have all now dipped into the red.

And after hitting that post-crisis high, France's CAC 40 has dropped back.

Emmanuel Macron's landslide victory shows French voters acknowledged that leaving the euro will not solve the economy's problems. However, Le Pen's still strong showing shows how Macron has just five years to turn France around.

His programme can put France back on a path of stronger growth, but he may only get a small majority in June's parliamentary elections.

8.10am BST

The Paris stock market is open...and France's main stock market index has hit a new nine and a half-year high.

The CAC 40 inched up by 0.2% to its highest level since the financial crisis struck almost a decade ago.

"Macron's win was not unexpected but it will add to already improving sentiment towards Europe as economic and earnings results have surprised on the upside in the early months of 2017.

The focus now will be on whether the EU can take advantage of the recent positive political and economic momentum to tackle some of the fundamental issues that have contributed to the structural problems facing the region and the rise of the populists."

7.50am BST

My colleague Alexandra Topping is covering all the latest French political action here:

7.49am BST

Investors are piling into French government bonds this morning, driving down Paris's borrowing costs.

Reuters has the details:

The premium investors demand to hold 10-year French government debt over German equivalents tightened to its lowest since early November after centrist Emmanuel Macron won the French presidency on Sunday.

European leaders hailed the victory of Macron as a vote for European unity and a blow to political forces that had sought to build on last year's Brexit vote to tear apart the European Union.

7.45am BST

Here's our news story about how the euro reacted to Macron's win:

7.42am BST

Emmanuel Macron's victory has spared world stock markets from a major crash.

But many analysts are already pondering the challenge faced by the 39-year old president-elect.

I expect Macron to manage the Presidency in a pragmatic way, pushing through some--if not all--reform, which should still be beneficial for France's growth potential.

Outside of domestic policies, Macron is clearly pro-EU which boosts the prospect for further eurozone integration, particularly if Martin Schulz replaces Angela Merkel as Chancellor in September. But even here, pragmatism is likely to prevail with a different, more flexible model of the EU likely emerging over the next few years.

The Frexit goblin will remain locked up as Macron takes the reins. French voters have clearly expelled the populist surge which resulted in Brexit and carried Donald Trump to the White House.

Hopes are really high and Macron will have to deliver. Risk of failure in delivering higher growth and lower unemployment is going to be the focal point and it is in this manner that all eyes will now turn towards the June parliamentary elections. Macron needs to make sure that he has a strong hand in the parliament which will help him to make swift movements. The unemployment rate in the country remains stuck at 10 percent, greater than that of the UK and Germany, so it clear that the country needs critical reform.

While politicians in Europe let out a collective sigh of relief what the result can't disguise is the level of voter dissatisfaction in France as a whole, given that nearly half the French electorate still voted for parties who ran on an anti-globalisation ticket.

Knowing all of this the new French President may well find that winning was the easy bit. It's all well and good running on a ticket of cutting 120,000 public sector jobs, a a60bn cut in public spending and a lowering of the unemployment rate to 7%, it will be another getting it through the French parliament.

Pressure on #MacronPresident now to reduce 10% jobless rate, create growth and control his government otherwise Le Pen will be back in 5 yrs

7.31am BST

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

The markets have a spring in the step this morning after Emmanuel Macron notched up a famous victory for the pro-European centre-ground against the populist far-right.

Good morning EMEA!
Asia risk-on post-Macron victory.
Japan reopens - on track for best session in 3 months.
China falls (trade data miss) pic.twitter.com/bcHM2KIyFg

Our European opening calls:$FTSE 7333 +0.49%
$DAX 12842 +0.99%
$CAC 5494 +1.13%$IBEX 11238 +0.92%$MIB 21710 +1.05%

"Markets are set for a buoyant start to the week after Emmanuel Macron eased to a widely-predicted election. Not only the victory but the scale of it should help deliver a significant boost to sentiment on Monday morning, even if turnout was quite low.

The result sends a loud signal to investors that political risks in France and across Europe are receding and that is undoubtedly supportive of European equities and the euro.

Addressing thousands of supporters in the grand courtyard of the Louvre, the vast Paris palace-turned-museum, Macron said he would defend France and Europe. He said Europe and the world are "watching us" and "waiting for us to defend the spirit of the Enlightenment, threatened in so many places".

He promised to unite a divided and fractured France, saying: "I will do everything to make sure you never have reason again to vote for extremes."

Macron tells those who voted for him only to stop Le Pen - "I know our disagreements, I'll respect them" but says he won't change programme

Macron tells Le Pen voters: "I will do everything to make sure you never have reason again to vote for the extremes"

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