European Markets Leap on French Election Results -- 2nd Update

By Riva Gold and Ese Erheriene Features Dow Jones Newswires

European stocks and the euro jumped Monday as results from the first round of French presidential elections eased investors' concerns about the future of the eurozone.

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The Stoxx Europe 600 climbed 1.8% in the early minutes of trading, led by the banking sector, while France's CAC 40 index surged 3.9%. The euro was up 1.1% at $1.0839 after touching a five-month high on Sunday as preliminary results were released.

Independent centrist Emmanuel Macron won the first round of the vote in France, beating out leftist firebrand Jean-Luc Mélenchon and conservative François Fillon to face off against National Front leader Marine Le Pen in the second round on May 7.

"The market is ready to bet Macron will be the next president of France, " said Jordan Rochester, strategist at Nomura, pointing to supportive polls and endorsements from defeated candidates that make him likely to outperform Ms. Le Pen, who campaigned to take France out of the euro.

Bank shares, which had been seen as vulnerable in the event of a victory for Ms. Le Pen, jumped across Europe on Monday. Shares of BNP Paribas and Crédit Agricole were up close to 8%, while Italian lender UniCredit added 8.5% and the wider European banking sector was up 4%.

"With Macron heavily favored in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios--priced in over recent weeks--will recede between now and the runoff," said Timothy Graf, head of macro strategy for Europe, the Middle East and Africa at State Street Global Markets.

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The gap between 10-year French and German government bonds narrowed sharply to as low as 42 basis points from 66 on Friday, according to Reuters, close to its lowest since late 2016. That gap had widened in recent months as investors braced for the possibility that France could be taken out of the euro.

The gap between German and Italian spreads also narrowed to 184 basis points Monday as investors had worried an upset in France could hurt fragile economies in the eurozone in the event of a euro breakup.

"We have added confidence in the polls," said Patrick O'Donnell, government bond portfolio manager at Aberdeen Asset Management. "There's still two weeks between now and the second round, but broadly I think the market will move on and start thinking about the next thing in Europe: Italy," he said.

Earlier, the rally in global finance markets lost steam in Asian trading as worries over potential government action to reduce market risk sent Chinese stocks lower. The Shanghai Composite Index was down 1.4%.

"There are no signs that regulators are going to ease the intensity of their campaign, so I think we are in for a period of downward correction, " said Zhang Gang, senior analyst at Central China Securities Co.

Hong Kong's Hang Seng Index added 0.5% while Australia's S&P ASX 200 added 0.3%.

A pullback in the yen boosted Japanese stocks, however, with the Nikkei Stock Average gaining 1.4%. The dollar was last up 1.1% against the yen, while the euro was up 2.1% against the Japanese currency, though observers attributed some of the common currency's jump to a lack of liquidity.

Other risk-sensitive assets also notched sizable moves. Gold futures fell 1.3% to $1,272 a troy ounce while 10-year Treasury yields jumped to 2.310% from Friday's 2.234%. Yields move inversely to prices.

Brent crude oil futures, which slid Friday to cap a 7% decline for the week, rose 0.7% to $52.30 a barrel. Commodities also benefited from a weaker U.S. dollar. The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.2%.

Emese Bartha, Kosaku Narioka, Shen Hong and Gregor Stuart Hunter contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

April 24, 2017 03:51 ET (07:51 GMT)