Markets have begun the week in a bullish mood following the news that Emmanuel Macron and Marine Le Pen have advanced to the final round of the French presidential election. The FTSE 100 has soared almost 2% after adding 130 points at the time of writing, whilst the euro has rallied across the board to trade at a 5-month high against the US dollar as traders are seemingly of the belief that this is a strongly positive outcome.
Macron to become youngest French president?
Reading more closely into these moves it is apparent that the vast majority in the markets are already firmly of the belief that the centrist candidate - and more importantly pro-EU - Emmanuel Macron will be announced as the next French president within a fortnight. The French stock market roared higher on the open this morning to trade at a record peak, with exchanges in Frankfurt, London and Tokyo also warmly greeting the news and giving little hope to Le Pen and the Front National.
Too far, too fast?
Whilst Macron moving into the Elysee Palace is the most positive outcome for markets, the size and scale of the move suggest more than a whiff of irrational exuberance. Let’s not forget that the outcome of the first round was a close resemblance of polls in recent weeks and with another round still to come, it may not quite yet be as much of a foregone conclusion as traders are betting.
Even if this assumption is correct, Macron may not have a free run once he takes office with the specifics of the French electoral system meaning that it will still be months before his support in parliament is known and there’s a very real possibility that he fails to achieve a majority. Cynics only need to look across the Atlantic for a prime example of an anti-establishment president failing to deliver on pre-election promises, which at the time of the result, markets assumed were a done deal.
Despite his tweets over the weekend, Trump is still struggling to force through his tax reform plans and traders will eagerly await the latest announcement on this matter this coming Wednesday.