Stocks surge as Macron takes the lead

The eurozone has dodged the populist threat that put political and financial stability at risk, says Lionel Laurent on Bloomberg. When it became clear that Emmanuel Macron had narrowly prevailed over the far-right National Front’s Marine Le Pen in the first round of the presidential election, markets surged. The French blue-chip index CAC-40 had its best day since 2012, climbing by 4.1%.

A gauge of global stocks reached a new record high, while the euro soared by 2.33% against the dollar to a six-month peak. The polls proved right for once, banishing fears of a run-off between far-left candidate Jean-Luc Melenchon and Le Pen. Both of them want to renegotiate France’s relationship with the European Union. With the centrist Macron miles ahead of Le Pen in the polls for the second round, the eurozone and EU should live to fight another day. 

Indeed, the nationalist tide may have peaked, says Leonid Bershidsky, also on Bloomberg. Populists suffered a setback in Austria in December and in the Netherlands in March; the worst potential threat, France, appears out of the way and investors now expect few ructions from Germany’s election, where the anti-immigrant AfD party has slipped in the polls and Angela Merkel is set for a fourth term.

“The nice thing about putting a geopolitical disaster situation behind you is you can start focusing on fundamentals,” Art Hogan of Wunderlich Securities told The Times. These are looking good for the single currency area, which grew marginally faster than the US last year and is gathering steam. Surveys are pointing to the strongest activity since 2011, unemployment has fallen to a post-crisis low and core inflation has ticked up. Earnings per share for the Stoxx 600, a pan-European index, could well rise by more than the 11% analysts have pencilled in so far, as Bank of America Merrill Lynch points out. Valuations are also far more reasonable than in the US.

French investors, meanwhile, are eager to see if Macron’s package of proposed structural reforms comes to fruition. He is one of the few people who can claim to have pushed through such changes before. La Loi Macron, a bill he introduced as economy minister in the Socialist government in 2015 – and bashed through parliament by decree, bypassing sceptical colleagues – deregulated cosseted sectors, such as notaries. It also loosened trade union restrictions on hours (making Sunday shopping more widespread) and made some small simplifications to the heavily regulated labour market. In the Anglo-Saxon context, this is small beer, but a decent start. Can he build on it?

Macron’s programme for shaking up France

The key elements of Macron’s proposals are trimming public-sector employment and the welfare budget, cutting corporation tax from 33% to 25%, and loosening the labour market by letting firms set working hours at the company, rather than the sector, level. He also wants to end social security contributions on overtime, limit the general wealth tax to real estate, and spend €50bn on infrastructure, green energy and transport.

Given that ambitious programme, winning the presidency “may turn out to be the easy part”, says Swaha Pattanaik on BreakingViews. Macron ran as an independent, so he “lacks the party machinery that will be essential to winning France’s legislative election in June”.

Still, reformist Socialists may back his plans and he would “have little trouble … convincing a right-wing majority of the need for labour market and business reforms”, reckons Capital Economics. The centre-right bloc is already close to a majority, according to polls, and would be pushed over the line by En Marche!, Macron’s new party. His reforms could add 1%-1.5% to GDP growth in the next few years, according to Capital Economics, and give corporate earnings a hefty fillip. It helps the outlook that the business cycle is in an upswing in any case. 

Much depends on personal chemistry and alliance-building in continental politics, and in this respect, his record bodes well, says Peter Ricketts, the UK’s former ambassador to France, in the Financial Times. Macron has “great charm” and “considerable courage” as well as intelligence, and his approach to La Loi Macron (see above) has demonstrated that he is “a firm believer in working by patience and persuasion”.