Uncertainty over U.S. interest rates kept Asian shares steady on Monday, while the euro rose following the first-round voting in France’s unexpected snap election, which was won by the far-right, though with a smaller share than some polls had projected.
The unexpected vote unsettled markets as both the far-right and the left-wing alliance that came in second on Sunday have pledged significant spending increases. This comes at a time when France’s high budget deficit has led the EU to recommend disciplinary measures.
On Monday, the euro rose by 0.41%, European stock futures increased by 1.4%, and French OAT bond futures gained 0.15% as investors reacted to the better-than-feared results, despite ongoing uncertainty.
“There is a sense of relief that the first round of the French elections weren’t as comprehensively in Le Pen’s favour as the polls indicated,” said Tony Sycamore, market analyst at IG. “This raises hopes that National Rally won’t win an outright majority, nor be in a position to open the purse strings, a proposition which had the French bond market and the euro looking nervously over their shoulders.”
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Exit polls showed Marine Le Pen’s National Rally (RN) winning around 34% of the vote, ahead of leftist and centrist rivals. However, the chances of the eurosceptic, anti-immigrant RN winning power next week depend on political dealmaking by its rivals in the coming days.
The focus now shifts to next Sunday’s runoff, which will hinge on how parties align in each of France’s 577 constituencies for the second round, potentially resulting in an RN majority.
“Investors are concerned that if the far-right National Rally party wins a majority, this could set the stage for France to clash with the EU, which could disrupt Europe’s markets and the euro sharply,” said Vasu Menon, managing director of investment strategy at OCBC.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.04% lower, starting the second half of the year on a subdued note despite a 7% rise so far in 2024.
