Macron, Le Pen win Round 1 of French presidential contest

Euro jumps, U.S. stock futures soar as traders and investors breathe a preliminary sigh of relief. But trading in stocks and bonds will likely be volatile for the next two weeks.

Emmanuel Macron and Marine Le Pen, Round 1 winners in French Presidential Election 2017. (Images via Wikipedia entry on 2017 French Presidential election, Creative Commons licensed, altered by the author to create single graphic image)

WASHINGTON, April 23, 2017 – The first round of the much-anticipated—and feared—French presidential election is over, and the winners are center-left candidate Emmanuel Macron and the fiery, right wing, anti-EU candidate Marine Le Pen.

French Election 2017 First Round results by French départment (political division). Image via Wikipedia entry on French 2017 presidential election, CC 4.0.

Macron appears to have topped Le Pen by a small margin at this point Sunday evening, with both candidates overcoming the conservative François Villon and avowed Communist Jean-Luc Mélenchon.

Both Villon and Mélenchon had been slipping in recent weeks, Villon—the once-favored candidate early in this race—and Mélenchon, a leader of France’s fast-slipping far-left.

Villon had been damaged since midpoint in the current campaign by allegations of campaign irregularities, including improper payments to his Welsh wife for political work. Villon claims the French government lodged charges against him simply to weaken his candidacy, although this episode has yet to play out.

This French election, much feared by investors and the political elite, has had a negative effect on world markets in recent weeks, affecting stock, bond and currency markets markets in America and across the globe.

The Euro also weakened last week, with currency traders fearing the final round of elections might lead to a choice of two candidates—Mélenchon and Le Pen—who were viewed as enemies of the Eurozone, with Le Pen in particular, threatening to remove France from both the common currency, the euro, and the EU as well.

Although Le Pen is now in the final round, she’s viewed as likely to lose that contest to the purportedly safer Macron who seems likely to consolidate much of the vote that went to the losing candidates.

As one result, the fearful investors of last week may be changing their tune, which could lead to a rollicking Monday trade on Wall Street and other markets. According to an early Sunday evening report posted by CNBC,

“Reuters data showed the common currency jumped to a five-and-a-half month high of around $1.0935 against the greenback, from a Friday close near $1.072. The euro also climbed more than 1 percent against the British pound and more than 3 percent versus the Japanese yen.

“‘The market needed to get what it was expecting,’ said Art Hogan, chief market strategist at Wunderlich Securities. ‘I think that’s the important thing.’

“‘Some of the safety trade we’ve seen recently could be unwound in the next week,’ he said.”

Yet the results of today’s initial round of French elections indicate longer-term political problems remain for that country. Today’s top vote-getters seem to indicate a clear rejection of the general post-WWII party alignments is well underway, just as recent elections in the U.K. (Brexit) and the U.S. (the Donald Trump win) earlier demonstrated.

ZeroHedge opines:

“But perhaps the most notable outcome, as Reuters adds, is today’s huge defeat for the French establishment – the two center-right and center-left groupings that have dominated French politics for 60 years, even as it reduces the prospect of an anti-establishment shock on the scale of Britain’s vote last June to quit the European Union and the election of Donald Trump as U.S. president.

“SocGen’s [French investment banking firm Société Générale’s] Kit Juckes reiterates the most notable takeaways from the result:

“‘There is a huge amount to be said in the weeks and months to come about the historic failure of the two establishment parties in France to make it through to the second round of the Presidential election, and indeed about what that means for upcoming Parliamentary elections too, but for now, the biggest takeaway from the first round result (and while the final count isn’t know yet, it results in a vote-off between Emmanuel Macron and Marine Le Pen) is that pollsters did a far better job of predicting the outcome in France than they did for the EU referendum in the UK or the US Presidential election.’

“‘And it’ s worth noting that the first poll released after the first round vote ended, from iPsos, sees a 62-38 outcome in favour of M Macron in the second round. That’s what the FX market is going to trade off in the days ahead and indeed is already doing. The Euro is on its way (up) and risk assets and currencies are heaving a sigh of relief.’”

As the voting totals made it clear that Macron topped Le Pen by a narrow margin of approximately 2 percentage points (as of 8:30 p.m. ET), Wall Street futures blasted off into the stratosphere, with the Dow mini futures ahead by a whopping 159 points, with the broader-based S&P 500 mini ahead by an impressive 20.25 points.

Earlier, the Dow futures had been up over 200 points. If the numbers remain near these levels later Sunday evening, it would indicate a big day of trading Monday for the recently beleaguered bulls.

Some intense short-squeezes are also possible on riskier issues that have been battered in recent weeks in favor of safer trades such as bonds and utilities—bond proxy securities investors will likely start jettisoning Monday if an early rally in riskier stocks gathers force.

Whether today’s French election results will revive the Trump Rally, however, will ultimately depend on whether America’s Republican Party can get its act together and begin to pass meaningful legislation in the critical areas of healthcare and taxes. Along with immigration issues, these key issues attracted the vital core of President Trump’s victory last fall.

As for Monday morning on Wall Street, markets are breathing a sigh of relief at least for now, notes one financial guru interviewed by CNBC in its report.

“‘This could’ve gone a lot of different ways,’ said Thomas Hainlin, global investment strategist at Ascent Private Capital Management. ‘The fact that we got a result that was pretty close to what the polls were showing is reassuring to financial markets.’”

Polls strongly favor Macron consolidating the anti-Le Pen vote running up to the final electoral round on May 7, 2017. But by now, most people have learned to discount both the polls and the likelihood of fake news, which could make the next two weeks very interesting ones for active investors.

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