Europe Markets Muted After Macron Win -- 2nd Update

By Riva Gold Features Dow Jones Newswires

Investors sold European stocks and currencies on Monday, brushing off Emmanuel Macron's widely-anticipated victory in French elections.

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The Stoxx Europe 600 edged down 0.3% from a two-year high as lower metals prices dragged down mining shares, while France's CAC-40 index fell 0.9% from its highest close since early 2008.

The euro was off 0.4% at $1.0955 after briefly touching a seven-month high following Sunday's victory for Mr. Macron, who vowed to reform France's economy and fight Europe's nationalist wave.

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

Futures suggested the S&P 500 would pull back less than 0.1% from a record close reached Friday, weighed down by declines in Chinese and European bourses.

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 level since 2015.

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On Monday, many of the most popular trades during that period sold off, including eurozone banks and companies with a large French revenue exposure. Still, analysts said the vote eliminated what was widely considered the biggest tail risk for European markets this year, allowing investors to focus on a strong earnings picture and broadening economic recovery.

"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.

Data last week showed the recovery in the eurozone economy broadening, with a measure of activity in the manufacturing and services sectors rising to a six-year high. Meanwhile, European earnings are on track for their best quarter in a decade, according to strategists at Morgan Stanley.

Despite a small pullback on Monday, "People definitely seem the most enthusiastic I've seen on European equities in a long time," said Pravit Chintawongvanich, chief derivatives strategist at Macro Risk Advisors.

In government bonds, German 10-year bund yields fell to 0.389% from 0.418% on Friday, while French yields fell to 0.738% from 0.770%. 10-year Treasury yields fell to 2.335% from 2.352% on Friday. Yields move inversely to prices.

Focus for investors now turns to French legislative elections in June, which analysts say will determine whether Mr. Macron can push through his agenda. Investors will also watch upcoming votes in Germany and Italy.

Yields on Italian 10-year notes rose to 2.194% Monday from 2.168% Friday, as investors remained concerned about its fractious politics and sluggish growth. Yields on debt from Spain and Portugal were also little changed, sitting out on the rally in France and Germany.

Earlier, markets in Asia mostly 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%.

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 1.7% to $5,490 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.

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 07:43 ET (11:43 GMT)