The election of the centrist candidate in France at the expense of the Far Right's Le Pen has cheered the wealth and investment community.

(Updates with further reactions)

Wealth and investment managers voiced their relief at the election to the French presidency of Emmanuel Macron, whose centrist political appeal and purportedly business-friendly rhetoric was seen as a welcome contrast to the Far-Right candidate of Marine Le Pen.

Macron won by 65.8 per cent; Le Pen won 34 per cent of the vote. Macron’s victory is seen as a blow to the populist surge among western nations in the past year. Macron has never won office before; he has struck a pro-market position - albeit with certain caveats - and is set to be the youngest-ever elected French head of state.

The euro hit a six-month high against the dollar today; Asian shares gained and US stock futures briefly touched a record high (source: Reuters, other). The French CAC 40 Index of shares was up by more than 1 per cent.

“French 10-year bonds were trading up to 50 basis points over German 10-year bonds recently, but we expect spreads to tighten moderately from those levels closer to last year’s average levels,” Kenneth Orchard, portfolio manager in global fixed income at T Rowe Price, the investment house, said. “After that, with France ‘out of the picture’ as a political risk, the markets will begin to focus on other issues," he said.

As a committed supporter of the European Union, Macron is expected to work well with German Chancellor Angela Merkel strengthening the Franco-German alliance on which the bloc depends, T Rowe Price's note said. On Brexit, Macron has emphasised the importance of “defending the integrity” of the EU’s key principles on labour movement and trade.

His election is seen as installing a more formidable negotiating partner for the UK in Brexit talks than previously thought. However, T Rowe Price said that Macron’s publicly expressed “sympathy” for the economic plight of countries such as Italy and Greece will raise hopes in those countries that he may help to soften what they regard as German-imposed austerity.
T Rowe Price's Orchard said of southern European countries in the light of the result that he remains cautious after the French result. “We are currently neutral on peripheral Europe but are looking to adopt an overall underweight position at some point,” he said. “As things stand, we are slightly long Italy, Portugal, and Cyprus and very underweight Spain."

More importantly, there will be renewed focus on the European Central Bank's (ECB) next move toward year-end. “Most analysts on the sell side expect a tapering from €60 billion per month to zero by mid-next year,” Orchard said. “However, we believe the reduction in the ECB purchases will be much more gradual, with a possibility of the quantitative easing program lasting into 2019. In that case, we may see peripheral spreads staying low for longer, providing an opportunity to re-enter a long periphery position if political risks do not materialise,” he said.

Laurence Boone, head of research and investment Strategy at AXA Investment Managers, said of the French result: "E Macron’s victory was priced in by markets, reflected in the euro appreciation in recent weeks, tightening of spreads (especially OAT), euro stocks up (especially French firms). As markets had to a large extent priced in Macron’s victory, we expect a rally of moderate magnitude in the coming days. Next, markets will likely come back to the uncertainty of US tax reform and financial deregulation, the US cycle and the Federal Reverse’s response in terms of monetary tightening, as well as European Central Bank next moves as the euro zone economy continues to recover more briskly (although we do not expect less quantitative easing or rate hikes before 2018)."

At Deutsche Bank, the Frankfurt-listed lender said: "Markets will be particularly looking for any reaction from the ECB to the election result (and to some recent upbeat economic data in Europe). Any indications of future policy tightening by the ECB could diminish investor worries around policy divergence between Europe and the US, supporting the euro."

"In the medium term, markets will have to assess two very different issues. The first issue is Macron’s ability to control, or at least have an effective working relationship with the new National Assembly to be elected in June. The fact that Macron is not a member of an established political party complicates any assessment of what will happen."

"But it seems certain that he and his party, En Marche!, will not have enough Members of Parliament  to enjoy a majority and will therefore need to negotiate some sort of broad left-right agreement in the assembly (unprecedented in recent French politics), or group with a right-of-centre majority (which might make implementing reforms easier) so called cohabitation. Nonetheless regarding the legislative election, a first poll on May 4th indicates that En Marche! could win around 250 seats. One indication of how Macron plans to proceed may be provided by his choice of prime minister, likely to be unveiled in the next eight days, and the subsequent cabinet nominations," it said.

"The second issue for the markets is the French and broader European economic backdrop.  Recent macroeconomic indicators have been broadly reassuring (as noted above) and muted optimism has displaced (for now) deeper concerns about France’s long-term economic malaise. If economic indicators remain supportive, and the ECB indicates further policy tightening ahead, further moderate gains in French risky assets look possible over the medium term, even if the political situation remains unclear," it added.

“Investors will likely welcome this result, as it eliminates uncertainty regarding France's ongoing membership in the euro. However, since markets anticipated this result, they had largely positioned for this outcome, which may cap any gains in the short term,” Dean Turner, Economist at UBS Wealth Management, said in a note.

"The headlines will focus on the result, but it is important to recognise that Le Pen looks to have picked up around 35 per cent of the vote. Macron is about to assume the presidency of a nation that is still very divided. Attention will now turn to June's parliamentary elections; a fair degree of success is needed here for the new president, if his economic reforms are going to see the light of day,” he said.

Kit Nicholl, country risk analyst at IHS Markit, said: “A tectonic shift in the Western liberal status quo has been averted with Le Pen’s defeat. Nevertheless, the victory of a 39-year old without an established party backing and who’s never held elected office does take France’s political system into uncharted territory. While the media spotlight has been trained on the presidential elections, little attention has been given to the equally important parliamentary elections that are scheduled for 11 and 18 June. This vote is crucial, as it will determine whether the new president will be able to implement his programme.”

“To govern effectively, Macron needs the backing of a parliamentary majority (289 seats or more), but the chance of his movement being able to build one, from zero seats, appears slim. One major challenge is that En Marche! has been entirely built around the candidate, Macron, and his political instincts. As a political movement, it has little to fall back on in terms of grassroots organisation and political expertise,” Nicholl said.

Economists at Julius Baer said: “The question will be whether Macron’s En Marche movement will win enough representatives in the national assembly and find support among the centre and left parties for Macron to follow-through with promised economic reforms. There is little risk now of the populist Front National taking over. The German parliamentary elections in September will likely be decided between Merkel’s CDU/CSU and the SPD, with no chance for the EU-critical AfD. Therefore, investors should enjoy some calm for the next months, as European markets will acknowledge less European break-up risks and be able to enjoy the back-winds from benign economic data, at least until the Italian elections, due in 2018, come into focus.”

“With the defeat of anti-EU Le Pen in France, populist risks fade and the economic data is back in the driver’s seat for European markets. More upside is possible. Furthermore, without the political drag, the euro can profit further from the improving economic backdrop in the eurozone,” the Swiss private bank added.