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The market reaction to Emmanuel Macron’s victory in the French presidential election has been muted so far, with investors having to a large extent anticipated the result.

“The euro went up a bit, down a bit and ended pretty much where it was last week. Damp squib would be an overstatement,” as Kit Juckes at Société Générale put it.

At pixel time, the euro was trading at $1.0984, after spiking to over $1.10 when the result came out. The bond markets were steady, with French 10-year bonds yielding 0.84 per cent.

Although Asian stock markets gained earlier in the day, this was primarily due to regional factors rather than a Macron response.

Attention now shifts to the wider European outlook, and particularly the prospects for monetary tightening by the European Central Bank. The German election will come into focus – although markets have been sanguine so far – while the prospects of an Italian election later this year or early next year looms on the horizon.

Francois Cabau, an economist at Barclays, said Mr Macron’s victory was “an important step in ascertaining the policy direction for France” but “not sufficient to gain a complete picture, given the lack of clarity on the outcome of the forthcoming parliamentary elections” where “the likelihood of a hung parliament is high”.

Mr Macron “may be able to gather a governing majority (possibly an absolute majority or grand coalition), which we believe would enable him to implement his reform agenda to a large extent”, Mr Cabau said.

The key indicator to watch will be splits within the Republican party in the coming weeks, Mr Cabau said.

Barclays reiterated its upbeat GDP growth projection of 1.5 per cent and 1.8 per cent in 2017 and 2018.

Laurence Boone, head of research at AXA Investment Managers, forecast “a rally of moderate magnitude in the coming days”.

Pierre Bose, from Credit Suisse’s European investment strategy team, remains positive on European stocks, “where earnings have surprised to the upside”, and continues to prefer them to their US counterparts.

Ray Attrill, head of FX strategy at National Australia Bank, said: “The question now is whether [pension funds and institutional investors], hesitant to commit more to eurozone assets ‘just in case’, will now do so with more gusto.”

The euro “can grind higher in coming weeks and months”, partly because “downside risks to the eurozone economy and inflation have further receded”, he said.

(Chart: Bloomberg.)

Copyright The Financial Times Limited 2017. All rights reserved.
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