hot topic

Positive outlook for European Shares

Analysts are positive on European shares and see the potential for renewed investor inflows

Emmanuel Macron was elected France’s head of state after beating his far-Right rival Marine Le Pen. Investors were heavily rooting for Macron as many believe a Le Pen victory could lead to the dismantling of the European Union and global financial upheaval. After this victory, Emmanuel Macron said: "I will defend Europe; it is our civilization which is at stake...I will work to rebuild ties between Europe and its citizens." He also mentioned France was facing an "immense task" to rebuild European unity, fix the economy and ensure security against extremist threats.

My opinion is that Mr Macron would bring much-needed stability to Europe ahead of the Brexit negotiations (this is also a situation with stock markets). The Prime Minister Theresa May "reiterated that the UK wants a strong partnership", she discussed Brexit with Mr Macron in a phone call two days ago. According to some analysts, Emmanuel Macron is expected to drive a hard bargain over Brexit, but this is the much better situation without Marine Le Pen. European leaders rushed to welcome the victory of Mr Macron who had flown EU flags at rallies throughout his campaign and has promised to lead a ‘rebirth’ of the European project.

The market has already priced in this victory, predicting that a Le Pen win would be a “shock event”. The situation in which Marine Le Pen has won the French election, her victory could easily send EUR/USD below parity and all the way to 0.90 (stocks and Indices would also have a very big drop). The EUR/USD jumped above $1.09 after the first round of France's vote last month and held around that level as most market participants expected Macron the pro-European candidate to win.

Emmanuel Macron’s victory has reassured investors, although profit taking has pushed shares down. An early burst of enthusiasm soon wore off, as investors either took profits. French shares fell on Monday with the CAC index down significantly more than other European equity benchmarks. It’s not the disappointment in Macron, who is widely seen as business-friendly but just that the market saw this result coming a mile away. On Monday after Emmanuel Macron’s victory:

  • France’s Cac closed down 0.91% at 5382.9
  • The FTSE 100 edged up 3.43 points or 0.05% to 7300.86
  • Germany’s Dax closed down 0.18% to 12,694.55
  • Spain’s Ibex ended down 0.35% to 11,096.3
  • Italy’s FTSE MIB closed down 0.26% to 21,428.10
  • The euro briefly climbed above $1.10 against the dollar for the first time in six months after Le Pen was defeated, before trading about half a percent lower at $1.093.

The main reason why the EUR/USD didn't advance more is connected with stronger-than-expected April employment report in the US. The stronger-than-expected April employment report was published on Friday, the country added 211,000 new jobs in April, whilst the unemployment rate fell to 4.4%, its lowest in a decade. Wages remained weak, but around these last month's levels. The bigger-than-expected 211,000 new hires in April indicated the world’s largest economy is still on its growth course, and that bodes well for global growth expectations.

In the US - the Nasdaq composite and S&P 500 notched new all-time intraday and closing highs on Monday despite a narrow trading range as investors digested Emmanuel Macron's victory over Marine Le Pen in the French presidential election. The Dow Jones industrial average also closed higher. It's a case that everyone had priced in, but people were still scared about another Brexit. The bottom line, Emmanuel Macron’s victory is the much better scenario for European and global stock markets. My opinion is that Mr. Macron would bring much-needed stability to Europe ahead of the Brexit negotiations.

Trade now