Anxiety Dissipates After First Ballot: French Election Monitor

  • Macron favored over anti-euro Le Pen in final round on May 7
  • Stock, bond, currency investors cut hedges after Sunday’s vote

Future of France: Macron and Le Pen Go Head-to-Head

Risk gauges across asset classes captured the sense of relief that washed over markets after centrist Emmanuel Macron won the most votes in the first round of France’s presidential elections.

A snap Ipsos survey suggested Macron enjoyed a 20 percentage point lead over runner-up Marine Le Pen ahead of the May 7 run-off. Investors had built up hedges over the past few weeks on concern the far-right candidate with an anti-euro platform had a path to victory. Risk metrics may continue to remain relatively elevated before the final vote after traders got it wrong going into the Brexit referendum and U.S. elections last year.

Here’s a look at what market indicators show:

French notes outperformed Monday, with the premium investors demand to hold the country’s two-year bonds relative to German bunds at the lowest in more than a month.

The cost to protect against French sovereign risk slid to the lowest since November, shrinking the difference versus German default swaps. Le Pen has pledged to redenominate French debt into a new local currency if she won power.

Bullish bets on the yen fell as Macron’s massive lead in polls ahead of the final-round vote reduced anxiety over the future of the common currency, options showed.

Derivatives tracking high-yield bonds and investment-grade banks gained.

The cost of hedging against declines in the Euro Stoxx 50 Index headed for its biggest drop ever as stocks jumped.

— With assistance by Cecile Vannucci

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