Global equity markets and the euro experienced a surge on Monday, driven by a wave of relief following the results of the first round of France’s legislative elections. The far-right National Rally (NR) party led by Marine Le Pen secured a resounding victory, but failed to achieve a majority, preventing a potential political upheaval that had sparked anxiety among investors.
Concerns had been mounting about the potential impact of the NR’s victory, particularly on fiscal spending and debt levels. The market had interpreted an NR majority as a worst-case scenario, leading to a decline in stock prices, especially among banks, ahead of the elections. However, the outcome, with President Emmanuel Macron’s centrists trailing behind a left-wing coalition, brought a sigh of relief to financial markets.
Analysts attributed the positive market reaction to the lowered likelihood of the NR securing an absolute majority and control of the government, which had been seen as a potentially destabilizing outcome. A hung parliament, though presenting challenges, could potentially alleviate concerns regarding a large-scale spending spree and contribute to a more stable political environment.
Beyond the French election, positive market sentiment was also fueled by other developments. Germany’s official inflation rate slowed more than expected in June, providing welcome news for the European Central Bank, which had recently made its first interest rate cut since 2019. Meanwhile, Wall Street also registered gains, with the Dow Jones Industrial Average rising on the back of cooler US inflation data released last Friday, further increasing the odds of the Federal Reserve cutting interest rates later this year.
The pound sterling strengthened against the dollar, boosted by the potential for a rate cut by the Federal Reserve. This development was attributed to the latest US inflation data, which has raised expectations for a shift in monetary policy. Despite the positive outlook, analysts cautioned that several key releases on US inflation and job data are still pending before a rate cut becomes a certainty.
