Thu | Sep 21, 2017

Vive le rally: Global markets soar after French election

Published:Tuesday | April 25, 2017 | 4:00 AM
Emmanuel Macron.
Marine Le Pen

United States stocks joined a worldwide rally om Monday after results from the first round of France's presidential election raised expectations that the European Union would hold together. A candidate seen as pro-business won the most votes on Sunday, and many investors expect him to win a runoff against the remaining anti-EU candidate, which is set for May 7.

Prices for gold and other investments that signal fear in the market all sank, while the euro's value surged against the dollar.

The Standard & Poor's 500 index jumped 23 points, or 1 per cent, to 2,372 as of 12:30 p.m. Eastern time. The Dow Jones industrial average rose 209 points, or 1 per cent, to 20,757; and the Nasdaq composite surged 66 points, or 1.1 per cent, to 5,977.

The gains were widespread. Five stocks rose for every two that fell on the New York Stock Exchange.

Coming into Sunday's presidential election in France, several candidates railed against the European Union, one of the world's dominant trading partners. A victory for one of those candidates would have followed the path set by last year's vote in the United Kingdom to exit the European Union and the US election of President Donald Trump as a kick in the face to the globalist, free-trade worldview.

Emmanuel Macron, a candidate investors see as pro-business, won the most votes in Sunday's election. He will face Marine Le Pen in a runoff election in two weeks. Le Pen is one of the candidates who is against the European Union, but many investors expect Macron ultimately to be victorious.

"It's not only France" where the forces of populism seem to be waning, said Luca Paolini, chief strategist at Pictet Asset Management, a United Kingdom-based firm that manages $165 billion in client assets. He pointed to the Dutch elections last month, where a candidate who ran on the pledge to pull The Netherlands from the European Union, lost.

"This surge is fading," he said. "Maybe it's too early to celebrate, but that's what the market is pricing in."

Paolini cautioned that political risks still remain: Not only is there the runoff election for France in coming weeks, but there is also the general election in June. And other elections may loom even larger for the future of the European Union such as next year's Italian vote.

France's CAC 40 index jumped 4.1 per cent and flirted through the day with its highest closing level since 2008. Germany's DAX jumped 3.4 per cent, and the FTSE 100 in London rose 2.1 per cent.

Asian markets also rose. Japan's Nikkei 225 index climbed 1.4 per cent, and Hong Kong's Hang Seng and South Korea's Kospi indexes both added 0.4 per cent.

Many investors see the Vix index as a measure of the market's anxiety level because it shows how expensive prices are to buy protection against upcoming drops in stocks. The Vix plunged 15 per cent.

Demand for other investments that investors flock to when they are fearful also fell. The price of gold fell $12.80 to $1,276.30 per ounce.

Prices for Treasury bonds dropped, which sent yields higher. The yield on the 10-year Treasury climbed to 2.26 per cent from 2.25 per cent late Friday.

Any rise in bond yields recently has fed into immediate gains for bank stocks, and Monday fit the pattern again. Higher interest rates means that banks can charge more for loans and reap bigger profits.

- AP