How are analysts parsing the market implications of an election outcome that investors, for once, actually saw coming? Here’s a round-up of the varied commentary from expert observers following Emmanuel Macron’s victory.
Julien Lafargue, European equities strategist at JPMorgan, said:
At the macroeconomic level the focus in the Eurozone will now likely shift away from politics and move on to the ECB. With a political agenda that should remain relatively light for a few months, the ECB’s meeting on June 8th will likely offer some insights on the key subject of QE tapering. Indeed, a diminished political risk coupled with a solid macroeconomic backdrop and early indications of a pick-up in core inflation argue for a gradual exit from the current extremely accommodative policy regime.
Michael Strobaek, global chief investment officer at Credit Suisse, said:
In the short term, we expect the EUR to bounce only marginally against the USD and the CHF, since we already saw a strong repricing after the first-round results as a Macron win was beginning to be anticipated. We eventually expect the EUR to return closer to pre-election levels against the USD due to the still divergent monetary policies in the Eurozone and the USA. Equity markets, too, are very likely to continue to attract investors, with financials expected to do particularly well.
Mark Siddle, portfolio manager for European equities at Fidelity International, said:
Simply not having Marine Le Pen as President will reduce the perceived political risks in Europe. Given that European valuations such as [price to book ratios] are still around long term troughs compared to markets like the US, with returns on equity that are rising to close the gap with the US while earnings growth and estimates are now outpacing the US, the potential for global investors to allocate more capital to Europe as the major political risk factor has been removed is clear.
Peter Hensman, global strategist at Newton Investment Management at BNY Mellon IM, said:
The challenge going forward is Macron’s lack of significant support in parliament. He founded his own party, En Marche!, and hence currently has no elected representatives to push through his plans. This means the parliamentary elections scheduled for 11 and 18 June will have significant implications for his future prospects. As with the election of Donald Trump in America, this counterweight to the president is likely to moderate the extreme expectations for policy change.
Kim Liu, Aline Schuiling and Nick Kounis at ABN Amro said:
For the coming period, we expect a relief in the market which could lead to somewhat higher outright yields. We expect 10y German bond yields to increase to 50bps at the end of Q2. At the same time, we judge that further spread compression of French and semi core bonds is limited, as the main consensus was already that Mr Macron would be able to follow through. Finally, we expect that spreads will not tighten that much as investors will look ahead at the tapering of the ECB’s QE programme and as the biggest political test for the eurozone is yet to come, which are the Italian elections.