Wealth managers react to the results, release early yesterday, of the first round of the French elections, seen as critical for the eurozone's future.

The era of unconventional politics seems to continue, with self-styled anti-establishment candidates Emmanuel Macron and Marine Le Pen winning the first round of the French presidential elections at the weekend. They enter the second, final round to be decided in a fortnight's time.

Le Pen, who leads the French National Front, a party renowned for its severely restrictionist views on immigration, trade protectionism and hostility to the eurozone, took 21.53 per cent of the vote. Emmanuel Macron, a former investment banker and civil servant who was not associated with any of the major political parties in France and who ran as a pro-European centrist, won 23.75 per cent of the vote. Centre-right Gaullist François Fillon, who sought to present himself as a "Thatcherite", won 19.91 per cent, and was eliminated. Leftwing candidate Jean-Luc Mélenchon won 19.64 per cent.

Opinion polls suggested (source: Daily Telegraph) that Macron would win the final round by 64 per cent to 36 per cent.

Encouraged by the prospect that a pro-euro, supposedly pragmatic politician could win office, the euro rose in the foreign exchanges in early trade yesterday, while investors signalled that European equities were headed higher. Gold prices - a typical safe-haven asset - fell after the French results.

The rise of Le Pen, who has praised the UK's Brexit decision and who is seen as tapping into some of the same fears about mass immigration and unfettered free trade that propelled Brexit and the US presidency of Donald Trump, has rattled investors.

Initial reaction to the results appeared relatively sanguine.

Timothy Graf, head of macro strategy EMEA, for State Street Global Markets, said: "With Macron heavily favoured in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios – priced in over recent weeks – will recede between now and the run-off. As volatility subsides, spreads between French and German yields should narrow and we look for the euro to build on its recent stability against the dollar."

Over at UBS, Dean Turner, economist, said last night as projected result outcomes came out: "If these projections hold true, there will be some relief among investors that a mainstream candidate made it through to the second round. As things stand, Macron is on course to be the next French president, so it is likely that we see a recovery in risk appetite toward French and other European markets.

“This relief may prove to be short-lived though as markets will still be alert to the possibility of a Le Pen victory in the second round. Although at this stage it seems unlikely, this campaign has thrown up many surprises already," Turner continued, adding: “The stakes for the economy and markets are markedly high. In an election dominated by surprises, Macron’s commanding lead in the second round polls may do little to alleviate market anxiety in its entirety."

Political uncertainties, even once the French elections are complete, are not out of the way. There is a UK general election (8 June) - which the ruling Conservative Party is forecasted to win based on opinion polls; there are national elections in Germany (24 September) where the outcome is less certain; and there remain prospects of a national poll in Italy, where politics remains in ferment.

BlackRock, the world’s largest listed asset manager, said of yesterday’s vote: “We see European risk assets gaining as business-friendly Macron looks poised to build on momentum to become president. We see yield spreads on French government bonds tightening but safe haven German bunds coming under pressure. We expect some political risk premium to remain heading into the June legislative elections.”

Anna Stupnytska, global economist at Fidelity International: “Markets will be buoyed by the positive outcome of the French election last night, with the centrist Emmanuel Macron going on to face the far right Marine Le Pen. This is not just because Macron is likely to win. Concerns over polling reliability and the turnout rate have been allayed after Sunday’s strong figures and markets reacted positively to the result in Asian trading this morning, with the euro up against the US dollar and Japanese yen and French bonds performing well.

However, Le Pen could still potentially win the second round. It is probably too early for markets to see a big relief rally just yet or indeed, for the ECB to send any signals on tapering its bond purchase programme this week. The focus now will be on whether Le Pen changes her anti-EU messages in the next few days, with the Le Pen-Macron debate scheduled for 3 May.”

Steven Bell, chief economist at BMO Global Asset Management, said: “So where to now? With the global economy steadily healing, the sigh of relief will be heard far beyond Europe. Risk assets will enjoy a marvellous Monday.”

“Yes, problems with the European project remain. The Five Star Movement could still gain power in Italy next year, unemployment remains far too high in many countries, yet a serious hurdle has been overcome and we expect European equities to perform strongly from here. Bund [German government bond] yields will rise but they remain exceptionally low and peripheral spreads are set to narrow. The euro has bounced but the extent of its rise will be limited by positioning, as there were a few large positions still left short the euro.”

“Europe has the prospect of several years of above trend growth with interest rates and inflation staying low. After years of disappointment, 2017 may be Europe’s year,” Bell added.

John Wyn-Evans, head of investment strategy at Investec Wealth & Investment, said: “The news today that the independent Emmanuel Macron and the far right Marine Le Pen have prevailed at the polls, setting up a final head-to-head in 2 weeks’ time, is seen as positive. Given the circumstances, this was the market’s preferred outcome, and the expectation now is that M Macron will prevail in the second round. His policies cleverly appeal to both sides of the political spectrum, and they are succinctly described by the Financial Times as a `business-friendly agenda coupled with Nordic-style welfarism’, encompassing, for example, labour market deregulation, lower corporation tax, and no social security contributions for those on the minimum wage. He is also a strong supporter of the European Union, although a full exposition of his EU policies might have to wait until we know who wins the German election later this year. We acknowledge that M Macron’s En Marche! Party is unlikely to attain a parliamentary majority in June’s legislative elections, but believe that a centrist, market-friendly coalition can be formed."

DBS Chief Investment Office said in a note: "With Macron scoring 23.9 per cent of the vote vs. Le Pen’s 21.4 per cent (according to an official tally of 96 per cent of votes), markets will likely be calmed. After all, the nightmare scenario – of Le Pen and far-left firebrand Jean-Luc Melenchon eliminating the centrists – never materialised. Even so, the first-round results suggest that France is more divided than ever."

"Taken together, the votes for Eurosceptic Le Pen and Melenchon accounted for nearly half of the tally - hinting at a fundamental reshaping of French (and possibly European) politics. Still, markets will likely heave a sigh of relief, with a possible rally in European equities, given that investors went into the weekend nervous from the terrorism-related shooting incident on Friday. US equities - which ended firmer late last week – will be watching whether US President Donald Trump delivers on his promise of a `massive tax cut' in an announcement this week. President Trump needs to restore market confidence in his ability to deliver on his promises. Disappointment on the tax front will reinforce market doubts about him," DBS said.

Hartwig Kos, vice-CIO and co-head of multi-asset at SYZ Asset Management, said: "While the result of the first round of the French election was spectacularly consensus, the market has reacted very positively to the outcome. A big part of this is the fact that the tail risk of a Marine Le Pen versus Jean-Luc Mélenchon second round has clearly gone away.

Moreover, the risk of a Le Pen victory in the second round has also appeared to meaningfully subside. While a standoff between Emmanuel Macron and Le Pen in the second round was widely suggested by the polls, the recent experience of Brexit and the election of Donald Trump made investors highly suspicious about the accuracy of opinion polls. However, this result of the first round in France, as well as the recent Dutch elections, appears to show Continental European opinion polls to be much more reliable.

"Macron currently leads the opinion polls for the second round by almost 30 per cent – while Le Pen scored poorly in areas such as Paris, at below 5 per cent in the first round. This clearly improved sentiment and many investors are now more willing to bet on a positive election outcome. We have also started to reposition our portfolios into a more pro-risk stance, recognising that political risks have moved more to the tail than previously expected. Despite this, we have kept some of our hedges intact, as the main characteristic of a tail event is the fact that it is unexpected," Kos added.

Samy Chaar, chief economist at Lombard Odier, said: "We expect these developments to be positive for European assets but highlight that while reduced, some risk is still present, and we keep our portfolio positioning unchanged. These results point to a reduced probability of a disruptive second-round outcome, which should be positive for European assets."