Stocks, Euro Rise in Relief After French Election: Markets Wrap

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(Bloomberg) — The prospect of French political gridlock sent European markets higher on Monday, with investors bidding up the euro and pushing the CAC 40 Index to its biggest gain since 2022.

The first round of legislative voting showed Marine Le Pen’s far-right party winning by a smaller margin than some polls projected, suggesting that the path to an absolute majority may be tougher than expected. The prospect that extreme parties to the right or left would struggle to gain the control needed to introduce radical fiscal policies was enough to kickstart a rally.

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“Markets are quite content there’s no apparent absolute majority,” said Claudia Panseri, chief investment officer for France at UBS Wealth Management. “The most extreme scenarios for the spread have been excluded.”

France’s CAC 40 Index jumped as much as 2.8% before retracing some gains. Banking stocks lead the advance in Europe’s Stoxx 600 Index, as French lenders Societe Generale SA, BNP Paribas SA and Credit Agricole SA all surged by more than 5%. The euro climbed to its strongest level since mid June. The spread between yields on French 10-year bonds and equivalent German debt narrowed, reflecting a reduction in risk perceptions.

In markets beyond Europe, US equity futures pared earlier gains to be little changed. Spirit AeroSystems Holdings Inc. rose 5.7% in US premarket trading after Boeing Co. agreed to buy back the supplier in an all-stock deal that values it at $4.7 billion.

France’s second round of voting will be held on July 7. The French political world is now embarking on a period of horse-trading. In constituencies where three people qualified for the runoffs, the third-placed candidate can withdraw to boost the chances of another mainstream party defeating the far right. 

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“There is some relief and short covering as the worst scenario is off but we are still in a very uncertain situation and will need to wait for next Sunday before taking any credible conclusion,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “But medium term, the outcome is not particularly positive and could be seen as a headwind for the economy.”

Meanwhile, in emerging markets, South African assets rallied after President Cyril Ramaphosa announced a new cabinet that includes members of the opposition Democratic Alliance, considered business-friendly by investors.

In commodities, oil rose as traders assessed economic outlook and geopolitical risks in Europe and the Middle East. Iron ore rose amid tentative signs of recovery in China’s steel-intensive property market, and speculation that Beijing could do more to support the sector. 

Key events this week: 

• Eurozone S&P Global Eurozone Manufacturing PMI, Monday
• Indonesia CPI, Monday
• India HSBC Manufacturing PMI, Monday
• UK S&P Global / CIPS UK Manufacturing PMI, Monday
• US construction spending, ISM Manufacturing, Monday
• ECB President Christine Lagarde speaks, Monday
• Bundesbank President Joachim Nagel speaks, Monday
• RBA issues minutes of June policy meeting, Tuesday
• South Korea CPI, Tuesday
• Eurozone CPI, unemployment, Tuesday
• Fed Chair Jerome Powell speaks, Tuesday
• ECB President Christine Lagarde speaks, Tuesday
• Australia retail sales, Wednesday
• China Caixin services PMI, Wednesday
• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday
• Poland rate decision, Wednesday
• US FOMC minutes, ISM Services, factory orders, trade, initial jobless claims, durable goods, Wednesday
• ECB President Christine Lagarde speaks, Wednesday
• New York Fed President John Williams speaks, Wednesday
• Sweden’s Riksbank issues minutes of June meeting, Wednesday
• Australia trade, Thursday
• UK general election, Thursday
• European Union provisional tariffs on China EVs set to be introduced, Thursday
• ECB publishes account of June’s policy meeting, Thursday
• US Independence Day holiday, Thursday
• Thailand CPI, international reserves, Friday
• Eurozone retail sales, Friday
• France trade, industrial production, Friday
• Germany industrial production, Friday
• ECB President Christine Lagarde speaks, Friday
• Canada unemployment, Friday
• US unemployment, nonfarm payrolls, Friday
• New York Fed President John Williams speaks, Friday

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Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.3% as of 10:27 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index rose 0.2%
• The MSCI Emerging Markets Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.5% to $1.0764
• The Japanese yen was little changed at 161.03 per dollar
• The offshore yuan was little changed at 7.2984 per dollar
• The British pound rose 0.2% to $1.2673

Cryptocurrencies

• Bitcoin rose 1.4% to $62,799.01
• Ether rose 1.7% to $3,474.46

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.41%
• Germany’s 10-year yield advanced nine basis points to 2.59%
• Britain’s 10-year yield advanced six basis points to 4.23%

Commodities

• Brent crude rose 0.6% to $85.48 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Matthew Burgess, Allegra Catelli and Catherine Bosley.

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