Financial markets across the planet welcomed the result of the first round of the French election, with the qualification of Le Pen and Macron for the second round. European equities rallied massively this morning with the CAC 40 jumping 3.40%. Financial stocks performed the best on Monday with Société Générale rising 8.9% and Crédit Agricole up 7.90%. Financials across Europe extended gains with Barclays, UBS and Commerzbank up 4.10%, 3.80% and 9.50% respectively.
In the FX market, the euro was better bid and gapped at opening. EUR/USD opened at 1.0859 on Monday, up 1.22% compared to Friday’s close (1.0728). The risk-on move triggered a sell-off in safe-haven assets, with the Japanese yen and gold falling 0.95% and 1% against the USD, respectively. In contrast the Swiss franc edged slightly higher as it gained 0.25% against the greenback. It may seem odd to investors that the Swiss franc did not suffered more; however it is coherent with the behaviour in the past few weeks. Indeed, the SNB was extremely active over that period as it tried to mitigate the CHF appreciation. By comparison, the JPY rose 2%, while the CHF surged 0.60% between April 1st and last Friday.
Overall, investors switched to risk-on mode and started reloading on risk. We expect the risk rally to continue gaining traction over the next few days as market participants sell US assets - especially bonds - and move towards European and emerging market assets. The hunt for yield is far from over, especially now that Trump’s reflation trade is losing traction.
By Arnaud Masset