European markets have seen a huge boost after the French election results announced on Monday morning helped calm fears over the rise of populism in the region.
European markets and the euro are rallying on the news that Emmanuel Macron, leader of the En March! Party, has made it through to the second round of the French elections with 23.9% of electoral support, making him the favourite for the role of French President.
He will stand against Marine Le Pen, leader of the National Front, who has won 21.4% of the vote, with the outcome similar to that predicted by the polls ahead of the first round of voting.
Centre-right rival François Fillon collected 19.9% of the vote, as support for him waned after he was implicated in a scandal for allegedly arranging fictitious jobs for his wife, while hard-left Jean-Luc Mélenchon was supported by 19.6% of the voters.
After the news, the French stock market rallied strongly, with the CAC 40 index jumping nearly 5% to 5,294 by mid-afternoon – its highest level since 2008. Other European markets followed suit, with Italy’s FTSE MIB up 4%, Spain’s Ibex 35 rising 3.4%, Germany’s DAX trading 3.2% higher, and the wider Euro Stoxx 50 up 4% to 3,578 points.
Meanwhile, the euro jumped to a five-month high immediately after the results became apparent, and is currently trading 1.2% higher against the US dollar at $1.0851.
Some change in investor sentiment was already seen on Friday before the election, with some money returning to ETFs investing in European stocks as investors banked on an outcome that would be positive for markets.
TrackInsight’s data shows these stocks took in some €63m of inflows on Friday, after flat or negative flows over the rest of the week leading up to the first round of elections, but Monday’s result would have given investors an extra boost.
However, while markets have reacted in a unanimously positive fashion, many commentators have also advocated caution, given the overall outcome of the election remains uncertain.
Anna Stupnytska, global economist at Fidelity International, said: “Le Pen could still potentially win the second round. It is probably too early for markets to see a big relief rally just yet or indeed, for the ECB to send any signals on tapering its bond purchase programme this week.
“The focus now will be on whether Le Pen changes her anti-EU messages in the next few days, with the Le Pen-Macron debate scheduled for 3 May.”