French stocks and the euro surged on Monday following the first round of elections, which indicated that the far-right would heavily challenge President Emmanuel Macron but fall short of a parliamentary majority.
France’s CAC 40 index, representing 40 major companies in Paris, opened with a 2.7% increase and closed 1% higher, though it remains nearly 6% below its pre-election level from June 9. Bank stocks rebounded, with BNP Paribas rising 3.6%, Societe Generale up 3.1%, and Credit Agricole climbing 2.8%.
The euro briefly reached its strongest level against the dollar in over two weeks. Meanwhile, French government bond yields remained stable after a recent spike, reflecting reduced investor concerns about a potential financial crisis similar to the 2022 UK market crash.
High voter turnout led Marine Le Pen’s far-right National Rally to secure 33.15% of the vote, followed by the left-wing New Popular Front coalition with 27.99%, and Macron’s Ensemble alliance with 20.76%, according to France’s Interior Ministry.
Despite the setback for Macron, markets experienced a relief rally. Investors were initially worried that a far-right or far-left parliament would exacerbate France’s debt and budget deficit, currently among the highest in the EU.
Analysts predict a likely hung parliament, potentially leading to political gridlock and stalling economic reforms. Some fear that Le Pen’s National Rally could align with leftist factions to enact tax cuts and reverse key reforms.
The election’s final round on July 7 will determine whether the National Rally can secure a majority, with investors cautious about maintaining Monday’s positive sentiment.
