Henderson: French election reaction - Macron to macro

(Foto: Tom Ross, credit portfolio manager)

The outcome of Macron and Le Pen getting through to the second round of the French presidential election was probably the most favourable likely result for risk assets, and markets are further buoyed by other leading candidates urging their support to back Macron in the final round of voting. It would take a significant deviation (more so than the Brexit referendum or the US election) from the polls in the second round for Macron not to win the second and final round on 7 May.

 At the time of writing, credit spreads are tighter across the board, with French credits leading the way. Credit default swap (CDS) indices are trading tighter, to levels last seen in 2015. Other higher beta assets, such as financials, high yield, hybrids and the peripheral eurozone securities are also outperforming. Markets are exhibiting a relief rally, and while the euphoria may be short-lived given that the second round vote is not a foregone conclusion, there are few other near-term macro events to impair risk sentiment. Looking further ahead though, fixed income markets are likely to turn to other factors that have been overshadowed by politics recently, including potential tightening of central bank policy and the corporate fundamentals.