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Investors breathed a sigh of relief on Sunday — for now, anyway.
U.S. stock futures opened sharply higher, with Dow futures soaring nearly 200 points as early results from the French election showed Emmanuel Macron and Marine Le Pen advancing to a presidential runoff. Those projections were based on exit polls; official results were not yet available.
“The market will enjoy this today, but she’s not out,” said Quincy Krosby, market strategist at Prudential Financial. “The pollsters got it right this time, but we don’t know if they’ll be wrong in the runoff.”
S&P and Nasdaq futures both spiked around 1 percent.
The euro, meanwhile, rose sharply against the dollar on Sunday. “There is some chance that the exit polls are overestimating Macron support,” Krishna Guha, vice chairman of Evercore ISI, said in a Sunday note.
“But regardless, the worst case outcome of a run-off between Le Pen and far-left Mélenchon has been avoided and no estimate has Le Pen so far ahead of Macron as to increase concerns about his ability to overhaul her in the run-off with the benefit of second choice votes from other mainstream candidates.”
Reuters data showed the common currency jumped to a five-and-a-half month high of around $1.0935 against the greenback, from a Friday close near $1.072. The euro also climbed more than 1 percent against the British pound and more than 3 percent versus the Japanese yen.
“The market needed to get what it was expecting,” said Art Hogan, chief market strategist at Wunderlich Securities. “I think that’s the important thing.”
“Some of the safety trade we’ve seen recently could be unwound in the next week,” he said.
Far-right candidate Le Pen and centrist Macron were largely expected to pull ahead in the first round of the French contest. The two had led most of the polls leading up to the election. Le Pen and Macron will face off again on May 7. Most polls show Macron easily beating Le Pen in the second round.
“In one year, we have changed the face of French politics,” Macron said at a rally. He added that he wants to relaunch the European project.
Macron of the independent En Marche party secured 24 percent of the vote, with National Front’s Le Pen trailing narrowly behind at 22 percent, according to Harris poll estimates.
“They have very contrasting views,” said JJ Kinahan, chief market strategist at TD Ameritrade. “You’ll get your first indication of who the market sees as the leader” heading into the runoff later on Sunday.
Also potentially important is that conservative candidate Francois Fillon endorsed the centrist Macron — rather than the fellow conservative Le Pen — as he conceded defeat Sunday evening local time.
Macron and Le Pen were neck and neck in the polls heading into the contest, with communist Jean-Luc Melenchon and conservative Fillon not far behind. According to French polling firm Ifop, the four candidates were separated by only 6 percentage points as of Friday.
The tight poll numbers led investors to dump the country’s sovereign bonds in favor of more stable German debt, pushing the spread between French and German 10-year yields to a near two-month high.
French and German 10-year yield spread
“This could’ve gone a lot of different ways,” said Thomas Hainlin, global investment strategist at Ascent Private Capital Management. “The fact that we got a result that was pretty close to what the polls were showing is reassuring to financial markets.”
—CNBC’s Gemma Acton and Jeff Cox contributed to this report.