Markets Leap on French Election Results

By Riva Gold Features Dow Jones Newswires

Investors plowed into stocks, the euro and a broad spectrum of so-called risky assets Monday after results from the first round of French presidential elections eased concerns about the future of the eurozone.

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U.S. futures pointed to a 1.2% opening gain for the S&P 500. The Euro Stoxx 50 index of eurozone blue-chips climbed 3.9% as a jump in bank shares put it on track for its best day in nearly two years. Futures on the VSTOXX, which measure the cost of insuring against swings in Europe's stocks, fell 15%.

Independent centrist Emmanuel Macron won the first round of Sunday's vote in France, knocking leftist Jean-Luc Mélenchon and conservative François Fillon out of the running. Mr. Macron will compete against National Front leader Marine Le Pen, who campaigned to take France out of the euro, in the second round on May 7.

Polls, which were largely accurate in predicting the first-round outcome, suggest he is likely to win, assuaging investors' fears over the risks associated with redenomination.

"The market is ready to bet Macron will be the next president of France, " said Nomura strategist Jordan Rochester.

France's CAC 40 index surged 4.6% on Monday, on track for its highest close since 2015 and best day since 2012, while Germany's benchmark DAX index added 3.1%, on pace to notch a fresh record, according to FactSet. The euro was last up 1.2% at $1.0856 after touching a five-month high on Sunday.

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Eurozone bank shares, which were seen as vulnerable to a victory for euroskeptic candidates Ms. Le Pen or Mr. Mélenchon, jumped 6.8%, on track for their best day in a year. Shares of France's Société Générale and Crédit Agricole were up close to 10%, while Italian lender UniCredit added 11%.

"European banks should be prime beneficiaries of policies that are pro-growth, pro-stimulus and not protectionist in nature," said Christopher Dyer, director of global equity at Eaton Vance.

He believes the French result should increase appetite for borrowing and investment in Europe at a time when economic growth and earnings are already picking up. Germany's Ifo institute said Monday that its business climate index rose to a multiyear high in April.

"It gives a lot of confidence to the market that we have a good feel for the outlook in France and to a large extent puts to bed the Frexit prospect," said Mr. Dyer, who holds an overweight position in European stocks.

"I don't think we're questioning the integrity of the European Union or the euro today," he added.

Earlier, stocks in Asia mostly moved higher following the French election result despite a drop in Shanghai-listed stocks. Hong Kong's Hang Seng Index added 0.4% while Australia's S&P ASX 200 rose 0.3%, led by energy companies and banks.

A pullback in the yen boosted Japanese stocks, with the Nikkei Stock Average gaining 1.4%. The dollar was last up 1.1% against the yen, while the euro added 2.1% against the Japanese currency.

Worries over potential government action to reduce market risk sent Chinese stocks lower, however. The Shanghai Composite Index fell 1.4% in its worst day this year.

As investors dialed down fears of a French exit from the currency union, gold -- which is sometimes held as a hedge in times of market stress -- fell 1.4% to $1,270.80 an ounce, while Brent crude oil, which fell 7% last week, rose 0.6% to $52.29 a barrel, also helped by a 0.2% fall in the dollar.

10-year Treasury yields were at 2.292%, compared with Friday's 2.234%. Yields move inversely to prices. The gap between 10-year French and German government bonds narrowed to its lowest since late 2016. 10-year French government bond yields fell to 0.780% Monday from 0.883% Friday, while German yields rose to 0.346% from 0.240%, according to Tradeweb. Investors had sold French debt and bought German paper in the run-up to the French vote.

Investors also largely judged that calm in France would make the European Central Bank more likely to ease its stimulus policy in the coming months.

Amid fresh confidence in the eurozone, Italy's FTSE MIB stock index added 4% and Spain's IBEX gained 3.4%. Bonds issued by French companies outperformed debt by firms in countries like Germany and Switzerland, while the price of protection against corporate defaults in Europe fell sharply.

"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," said Patrick O'Donnell, portfolio manager at Aberdeen Asset Management. Italy's Democratic Party holds primaries later in April, determining who is expected to face the populist 5 Star Movement in coming elections.

In the U.S., risk sentiment is expected to be tempered somewhat this week by the prospect of a looming deadline to avoid a government shutdown and an uncertain policy mix, analysts said.

President Donald Trump said he would be making a "big announcement" about taxes this week, but his budget director said that it might be June before the White House releases its detailed plan.

Shares of C.R. Bard Inc. increased 19% in premarket trading after Becton Dickinson agreed to pay $24 billion, while Hasbro Inc. shares gained about 4% after its profit and sales results beat expectations.

Ese Erheriene, Tasos Vossos,

Emese Bartha

and

Nina Adam

contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

April 24, 2017 09:12 ET (13:12 GMT)