Europe Markets Creep Down After Macron Win; China Falls on Regulation Fears -- Update

By Riva Gold Features Dow Jones Newswires

European markets largely brushed off the results of the French presidential election on Monday as investors had already bet on a victory for centrist Emmanuel Macron, who vowed to reform France's economy and fight Europe's nationalist wave.

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The Stoxx Europe 600 edge down 0.2% midmorning from a two-year high, held back by a fall in the basic resources sector, while France's CAC-40 index fell 0.7% after ending at its highest since early 2008 on Friday.

The euro was off 0.5% at $1.0946 after briefly touching a seven-month high shortly after the vote on Sunday, while the gap between French and German government bond yields widened slightly in morning trading.

"With the market expecting this kind of result [in the French election], there is no goodwill affect today," said Gilles Pradère, a portfolio manager at RAM Active Investments.

In the weeks between the first and second rounds of the French vote, Mr. Macron solidified his lead in the polls over anti-euro candidate Marine Le Pen, and European markets rallied as investors dialed down fears that France would ultimately pull out of the currency union. The euro climbed to its highest level this year, spreads between French and German bonds fell back to November levels and eurozone stocks climbed to their highest since 2015.

Moves implied by options markets for this week were only half the size of those expected following the first round, where four candidates appeared to be neck-and-neck, according to Macro Risk Advisors.

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Still, Mr. Pradère and other investors said that while some may take profits in the short-term after the result, the long-term effect of the French vote on European risk assets would be positive.

"A lot of the story of Europe is it's been held back by political risk," said Ryan Myerberg, portfolio manager at Janus Capital.

"As we put that to bed, for some time, the market can focus on some positives that've been lost in the wash," he added, pointing to improvements in European confidence surveys and purchasing managers' indexes, and a modest pickup in inflation.

European earnings are on track for their best quarter in a decade, according to strategists at Morgan Stanley.

Focus for investors now turns to French legislative elections in June, which analysts say will determine whether Mr. Macron can push through his agenda, as well as upcoming votes in Germany and Italy, the next big political tests for the eurozone.

Earlier, markets in Asia moved higher, supported by the outcome in France, a spate of robust corporate earnings and a slightly better-than-expected April jobs report in the U.S. on Friday, which lifted the S&P 500 and Nasdaq Composite to record highs.

Japan's Nikkei Stock Average rose 2.3% to its highest level in 17 months as it reopened after public holidays. Korea's Kospi also added 2.3%, hitting an all-time high, while the S&P/ASX 200 in Australia gained 0.6% and Hong Kong's Hang Seng Index added 0.4%.

Stock markets in China were lower, however, amid concerns that sustained regulatory tightening might force funds to exit. Investors were jolted by rumors on social media Friday that regulators were scrutinizing asset-management operations as part of efforts to cut leverage in the financial industry. The Shanghai Composite Index fell 0.8%.

Data also showed China's trade surplus widened in April, but both exports and imports grew less than expected.

Concerns about China have weighed on metals prices in recent sessions. Copper futures fell 1.5% to $5,504 a ton on Monday, dragging down Europe's basic resources sector.

"You're starting to see commodity weakness again filtering through, primarily because of China cracking down on speculative types of activity, raising short-term interest rates and causing leveraged players in China to dump positions," said Said Haidar, chief executive of global macro hedge fund Haidar Capital Management.

He has reduced exposure to mining companies and U.K. stock indexes recently as a result, and extended positions on bank-heavy European indexes.

The Euro Stoxx Banks index fell 1% on Monday but remains up 10.6% from a month ago. German 10-year bund yields fell to 0.400% from 0.418% on Friday, while French yields fell to 0.747% from 0.770%.

Ese Erheriene, William Horobin,

Yifan Xie

, James Glynn and Yantoultra Ngui contributed to this article.

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

(END) Dow Jones Newswires

May 08, 2017 06:09 ET (10:09 GMT)