European stock markets rose today amid signs that France’s far-right party will fail to win a majority of seats in parliamentary elections.
In the bond market, the premium investors are demanding to hold French government bonds has fallen from a 12-year high.
Analysts said investors were hopeful that the far-left and far-right would be less free to implement big spending policies that could damage France’s finances.
Marine Le Pen’s far-right National Rally (RN) party has made a historic breakthrough, winning the first round of France’s parliamentary elections, but the final result will depend on alliance-building in the days leading up to next week’s runoff elections.
“The market is rising out of relief and it’s unlikely that NR will win an absolute majority,” said Fiona Cincotta, an analyst at StoneX, parent company of City Index.
The outcome was seen as a worst-case scenario as concerns over rising government spending and rising debt levels had sent stock prices, particularly bank shares, plummeting in the run-up to the first round of the election.
Analysts say leaving Congress in limbo could lead to months of political paralysis and chaos.
Meanwhile, Neil Wilson, chief market analyst at Finart, said: “While it may reduce the likelihood of a big spending surge, it is unlikely to help improve France’s already quite fragile fiscal position.”
At the close, the Paris CAC 40 index was up 1.1%, the German DAX was up 0.3%, as was the pan-European Stoxx 600 index, and the FTSE 100 was flat.
The spread between 10-year French and German government bond yields – a measure of the risk premium investors demand to hold French government bonds – narrowed by 0.06 percentage points to 0.74 percentage points.
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