Henderson: Markets move on from Macron victory

Risk assets are continuing to breathe a sigh of relief on Emmanuel Macron’s success in the second round of the French Presidential election. Credit markets had already rallied significantly following the first round vote, with spreads on European investment grade bonds (at least at index levels) back to the tights of September 2016. The polls suggested all along that Macron would win and by a decent margin so yesterday’s vote is no surprise for markets, but we are still seeing a small positive reaction in credit.

 

We had already used the run-up to the first round vote to cover some of our underweight to French risk, choosing to cover this mainly in financials (especially the insurance sector which was one of the few credit sectors to cheapen significantly in the run-up to the vote) and via government bonds. Since the first round, we have continued to increase our risk exposure in credit portfolios as the chances of a Macron win seemed more and more likely.

 

Political risk in Europe now appears to be on the backburner, at least for the summer months. Attention will shift instead to central bank rhetoric, and for European portfolios, specifically anything that the European Central Bank and Mario Draghi may have to say about the end of quantitative easing (QE) and the corporate sector purchase programme (CSPP).