Originally published by AMP Capital
As suggested by opinion polls the centrist pro Euro candidate Emmanuel Macron has won the French presidential election against the far right, anti globalisation, anti Euro National Front candidate Marine Le Pen. Projections based on results counted so far put Macron on track to take around 65% of the vote, with Le Pen getting around 35%. This is a bit better than recent polls but is close enough and along with the first round vote and the Netherlands election provides a vindication of them. While many French are sceptical of Macron (with abstention at 25% and invalid ballots at 9%) the result is consistent with continuing high French public support for the Euro and and the negative attitude towards the far right National Front (partly for historical reasons). With all the talk about a populist/nationalist surge across Europe supposedly on the back of the Eurozone public debt and migration crises and the Brexit and Trump wins, terrorist attacks in France and numerous hacks into Macron's campaign the surprise for many may have been that Le Pen did not do better. Support for nationalists in Europe and a break up of the Euro has been wildly exaggerated since the Brexit vote and the outcome of the French presidential election is the fourth election since Brexit - Spain, Austria, the Netherlands and now France - that has seen the nationalists do far less well than the headlines initially suggested.
Macron's policies seek to strengthen the European Union and the Eurozone and maintain openness and are mildly reformist for France focussing on labour market deregulation, lower taxes and a reduced role for the state - which would be good for the euro and the French economy. If France is to escape its low growth/high unemployment malaise it needs economic rationalist reforms (like Anglo countries saw in the 1980s and Germany saw under Gerhard Schroder). That France has opted for this path - albeit with not whole hearted support (then again only just over a third of eligible British voters voted for Brexit!) - and rejected the nationalist divisive politics of the National Front is a very good sign.
Macron’s victory is likely to see a reinvigoration of efforts led by France and Germany to further strengthen the Eurozone.
As such the result is positive for investment markets, particularly French and Eurozone shares and the Euro. However, with French shares already up 7.4% and Eurozone shares up 6.3% since the first round election and the Euro up against technical resistance after recent strong gains much has already been factored in. The focus will now shift to June 11 and 18 parliamentary elections in France where polls point to a poor showing by the National Front but Macron’s En Marche! (Onwards) potentially winning a majority or able to form a reformist government probably with support from centre right Republicans. It remains to be seen what impact the release of hacked material from Macron's campaign will have but its unlikely to change the likelihood of Macron being able to govern with a centrist reformist government.
While some see the German election in September as a threat this is very unlikely as the contest looks to be between Angela Merkel and the Social Democrats under Martin Schulz who are even more pro Europe, with the nationalist Alternative for Deutschland polling less than 10%. As such, the German election should further help reduce Eurozone break up fears. While Italy remains a risk for next year (as popular support for the Euro is lower in Italy and anti-Euro parties have seen their support rise), this all comes at a time when Eurozone assets remain relatively cheap globally and Eurozone economic data continues to improve. All of which is consistent with retaining a large exposure to Eurozone shares.
While the outcome of the French election reduces the political risk facing Europe, the ECB is unlikely to become more hawkish just yet because it continues to lack confidence that inflation is on the rise sustainably.
For Australia, the French election is unlikely to have a major impact beyond helping to keep in place a favourable global growth backdrop. That said, the positive outcome to the French election coming on the back of good gains in the US share market on Friday in response to good jobs data which saw ASX 200 futures rise 0.9% on Friday night, all points to a strong gain at the open today for the Australian share market today. Beyond the initial open though the focus will shift back to concerns about a slowing in Chinese growth and the flow on to the iron ore price and hence Australian resources shares.