Hundreds of billions of dollars were added to the value of blue-chip stocks yesterday as France’s presidential election sparked a global relief rally.
Traders rushed towards risky assets after liberal centrist Emmanuel Macron won 24 per cent of the vote in the first round of the race to become French president.
Analysts believe Macron will comfortably defeat far-right candidate Marine Le Pen in the final round on 7 May – an outcome seen as stable and positive for the EU and growth.
Across Europe, 350 stocks monitored by S&P Dow Jones Indices gained $289.7bn. In France, the market cap of top companies rose by nearly $60bn.
France’s Cac 40 index jumped 4.1 per cent – its sharpest daily rise since August 2012 – while Germany’s Dax hit a new record high, up 3.4 per cent. A Macron victory is expected to result in closer cooperation between the neighbouring Eurozone giants.
The bullish mood spread across trading floors throughout the world. Wall Street enjoyed its best day since the start of March, with the Dow Jones ending 1.06 per cent higher, and the Nasdaq up 1.24 per cent.
Meanwhile the spread between yields on French and German 10-year government bonds narrowed to the tightest level since mid-December.
The difference in benchmark government bond yields, which move inversely to prices, has in recent months represented the premium that investors demand for higher political risk in France.
“Le Pen will almost certainly be defeated in two weeks’ time, and equities can continue to rally going into 2018 as non-existential risks can be absorbed,” said Bill Street, head of investments for EMEA at State Street Global Advisors.
“The global economy might not be booming, but growth is returning. Some of the moderate risk premia in the bond market will also disappear, and this would most likely benefit lower-quality assets the most.”
Read more: A Macron victory could be good for Brexit
Investors have been assured by the long odds on a Le Pen presidency. The far-right candidate has alarmed markets throughout Europe with her promise to hold a referendum on membership of the euro, despite the large constitutional hurdles preventing France leaving the euro or the European Union.
The euro maintained its gains against the dollar yesterday, trading around $1.088 last night, up from $1.073 last week.