Charts Show Traders Writing Down Chances of a Le Pen Presidency

  • Euro implied volatility plummets with odds on Macron victory
  • U.S. equity futures spike as Asian volatility gauges decline

EU's Moscovici Says Le Pen Will Be Defeated

Markets trimmed their hedges against a Marine Le Pen victory Monday, judging that the outcome of France’s first-round presidential poll reduced the odds of her winning office and seeking an exit from the euro.

Anxiety the ballot would deliver a market surprise akin to those seen after Donald Trump’s win and the U.K. referendum faded as most Asian stocks and the euro jumped with higher-yielding assets. Volatility bets were cut, while havens took a beating after the vote put Emmanuel Macron in pole position to become the country’s next president on May 7.

French Election: Latest Coverage

“A collective sense of relief that the global economy is over another hurdle should see a risk on rally,” said Michael McCarthy, CMC Markets’ Sydney-based chief market strategist.

Here’s how the moves played out:

The euro soared the most in more than five months, while the yen, which has gained steadily this year amid a global cocktail of geopolitical tension, slid the most in four years versus the common currency.

The drop in one-month implied volatility in the euro-yen rate outpaced that for the euro-dollar, a sign risk sentiment has improved markedly following the first round, according to SMBC Trust Bank Ltd. Still, euro-greenback one-month implied volatility was headed for its biggest decline on a closing basis on records going back to 1998.

We’re seeing “a sense of relief from the markets, especially given that the first round of results have pretty much been what the market has been expecting,” Jingyi Pan, a market strategist in Singapore at IG Asia Pte Ltd. “This provides more stability for the euro region.”

While Chinese stocks shrugged off the bullish mood, the yen’s drop ensured Japanese equities led the charge in Asia, with the Topix index jumping more than 1 percent. Futures on the S&P 500 Index pointed to gains in the U.S. -- rising as much as 1.1 percent in early Monday trade.

A Macron victory also means the European Central Bank may be able to countenance tapering stimulus toward the end of this year, Anne Anderson, who oversees the equivalent of $19.8 billion as head of Australian fixed income at UBS Asset Management, told Bloomberg TV. 

The yen wasn’t the only safety play to see declines, with gold and U.S. Treasuries taking a hit with a swathe of Asian government bonds too. Gold fell as much as 1.5 percent and the benchmark 10-year U.S. yield climbed six basis points to 2.31 percent. In Asia, the cost of insuring corporate and sovereign bonds from default fell the most in five weeks.

Rattled after a number of weeks of geopolitical angst -- from Trump’s Syria attack to North Korea’s saber rattling -- stocks took the French result as a cue to run down volatility, with gauges of expected swings in Asian shares falling Monday.

“There’s certainly a change that’s been demanded from the electorate, but it’s a more balanced view and that’s good for markets,” said UBS Asset Management’s Anderson. “It’s pro-growth, with a less protectionist slant.”

More on the vote results: Macron, Le Pen in French Runoff as Establishment Crashes Out

— With assistance by Michael Wilson, Jeff Sutherland, and Adam Haigh

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