Markets Leap on French Election Results

By Riva Gold Features Dow Jones Newswires

Investors poured money into stocks and the euro 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 1.1% opening gain for the S&P 500. Futures also indicated the Dow Jones Industrial Average would open up nearly 200 points. Changes in futures don't necessarily reflect moves after the opening bell.

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%.

"We're seeing broad-based interest, not just in large-cap stocks, but also in small-cap stocks," said John Brady, managing director at futures brokerage R.J. O'Brien, adding that the jump in stocks and stock futures on Monday makes sense as many traders had buttressed their portfolios to protect against a surprise outcome in Sunday's French election.

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.

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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.

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.

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.

Government bonds sold off, with the yield on the 10-year U.S. Treasury rising to 2.296%, according to Tradeweb, from 2.234% on Friday. Yields rise as bond prices fall.

Investors also largely judged that calm in France would make the European Central Bank more likely to reduce 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.

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.

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.

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.

Corrie Driebusch contributed to this article.

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

(END) Dow Jones Newswires

April 24, 2017 09:45 ET (13:45 GMT)