UBS: Macron wins the French presidential election

Emmanuel Macron has defeated Marine Le Pen in the race for the French presidency, according to exit polls. The tally of French voters leaving the polling stations showed centrist Macron on around 65%, versus 35% for Le Pen, who conceded the election. The outcome will be a relief to investors, who feared that Le Pen would seek to pull France out of the EU and the Eurozone. With this risk out of the way, we expect European markets to refocus on the Eurozone's economic recovery and a gradual reduction of monetary stimulus from the European Central Bank starting early next year. 

Markets had started to price in the result following the first round of the French elections on 23 April, but Macron's victory should nonetheless prove supportive for risk assets in the near term – including our overweight position in US and global equities versus high quality government and corporate bonds. 

We are also overweight the euro versus the US dollar. The euro has gained almost 4% versus the US dollar over the past month, and we expect the single currency to extend its gains over coming months, targeting 1.15 over our six-month tactical investment horizon. 

Our underweight position in euro high yield credit could suffer in the near term if the French vote proves positive for risk assets. But yields are already close to record lows and we do not expect them to fall significantly further. 

Continental Europe has so far avoided the swing to populism that threatened to undermine the region's institutions. Voters in Holland and now France have rejected anti-European politicians. We expect market attention to shift to the Eurozone's economic recovery. But we would note that while populist parties have not triumphed in continental Europe, they have gained ground. We will continue to pay close attention to political risks in the months ahead. 

Given our investment positioning going into the election, we make no changes to our tactical asset allocation at this time. For more detail on the outcome please see our French Election Watch report.