First Round of French Elections Boosts Euro and Drops Gold
European markets responded very positively to news that Emmanuel Macron had garnered the highest percentage of votes amongst all the candidates taking part in the initial round of the French presidential elections. While France’s CAC Index reached its nine-year high as soon as the results started coming in, Germany’s DAX touched an all time high. In fact, the Euro also surged to a five month high as soon as the reports from the exit polls indicated the Macron would make it to the next round. Furthermore, the Euro continued its gains the next day when it was confirmed that the centrist candidate was indeed through to the final round.
The Euro closed Friday at $1.0723 but it climbed 1.2% to touch $1.0858 by the European close. The Asian session saw a high of $1.0919 but this dropped slightly on account of profit taking. The Euro also surged against the British Pound to touch 85 pence before dropping. It also climbed against the Swiss Franc. As encouraging as the Euro rally seems to be, investors will still have to wait for the final election scheduled for May 7th to get a clearer picture about its value.
There was overall positive sentiment in other equity markets as well. Japan’s Nikkei 225, Australia’s ASX 200, and Hong Kong’s Hang Seng indexes also ended the session in positive territory.
Gold was trading lower at the same time as the relief rally since there was clearly less demand for the precious metal which is widely considered to be a safe haven that is useful whenever there is a bout of political uncertainty. Fears about the outcome of the French elections had propped gold up to its five and a half week high but it finally dropped to $1265.33 per troy ounce. Furthermore, another popular safe haven, the Japanese Yen, saw a reduction in demand. In fact, the Euro jumped in value against the currency to touch its one-month high of 120.75 yen although it eventually subsided to below 120 yen. Investors were also pulling out of core government bonds to buy into the Euro since it now appeared to be a safe investment.
Markets have been understandably jittery in the weeks leading up to the French elections because of fears that the right wing candidate Marine Le Pen would pull France out of the European Union, much in the way of Brexit. After all, she has been vehemently anti-Euro throughout her campaign. The market rally can clearly be seen as a sigh of relief since Emmanuel Macron, on the other hand, is a centrist who believes very much that France should remain part of the European Union. The fact that he received more votes than any other candidate, and would likely be endorsed by many of the losing candidates, would definitely have bolstered the Euro’s performance. In fact, his independent party, En March, is expected to come to power when France foes to the final round of voting since voters are likely to exercise their franchise tactically to exclude the National Front’s Marine Le Pen.
Needless to say, leaders of other European nations have welcomed the good performance of the Euro-positive Marcron. The elections have been hotly contested on a number of issues of pressing importance to the rest of Europe. This include how to handle immigration and also what the future of the Euro, and indeed the entire European Union, is. The fact that Macron represents continuity has clearly been welcomed by the markets. French and other markets in Europe are likely to attract more investors now that it seems that political stability is assured.