Macron Victory Eases European Political Risk - Context
by Fixed Income AllianceBernstein
May 08, 2017

Financial markets will welcome the election of centrist, pro-European Emmanuel Macron as Franceâs next president. Now that Europe has avoided a major political upset, all eyes will be on the European Central Bank (ECB) and its next move.
Macronâs comfortable win in Sundayâs election will be greeted with relief by financial markets. His reformist agenda is much more business-friendly than the protectionist, anti-globalization policies espoused by his opponent, far-right Marine Le Pen. And Le Penâs hostility to Franceâs membership of the European Union (EU) and the euro could have challenged the stability of the single currency and, ultimately, the EUâs political cohesion.
Markets had started to price in a Macron victory before the vote because of his wide lead over Le Pen in opinion polls. Nonetheless, the news is likely to be taken positively, give a boost to the euro and lead to a further reduction in the premium that investors demand to hold French government bonds instead of their German counterparts.
Victory for a mainstream, pro-EU candidate will certainly be greeted with relief and enthusiasm in Brussels, too. Whether or not Macron will be able to reform France and relaunch the European âprojectââas claimed by his most ardent admirersâis a different matter, though. A recent opinion poll suggests that he may be able to gain a majority of seats in Juneâs crucial parliamentary elections. But neither this, nor Macronâs willingness to take on Franceâs vested interests, is certain.
Immediate Political Risks Recede
Sundayâs result should also lead to a temporary reduction in European political risk. The only other important events on Europeâs political calendar this year are Franceâs parliamentary polls, Britainâs general election (also in June) and Germanyâs federal elections in September. None of these is likely to be systemically important. The next globally significant European political event is probably the Italian general election, but thatâs more likely to take place next year.
All Eyes on the ECB
Now that Macron has won, we expect investor attention to focus on the ECB and the growing likelihood that it will either announce or begin to taper its quantitative easing (QE) program in the second half of the year.
This process should start in June, with the ECB shifting its risk assessment to balanced and possibly removing the easing bias in its forward interest-rate guidance. This is likely to put upward pressure on Bund yields and the euro and provide a more challenging backdrop for peripheral bond markets.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

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