French stocks, euro stumble after Macron victory in France

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In a replay of the 2017 election, France's Emmanuel Macron has defeated candidate Marine Le Pen in the second round of a runoff vote, marking the first time the country has re-elected a president in two decades. Official results showed En Marche's Macron garnering 58.5% of the ballot compared to the 42% of Le Pen, marking a decisive, but smaller victory than the 32 percentage point win seen during the same contest five years ago. "An answer must be found to the anger and disagreements that led many of our compatriots to vote for the extreme right," Macron declared during a victory speech at the Eiffel Tower. "The task is to reunite. It will be my responsibility and that of those around me."

Market angle: The euro opened up 0.5% against the dollar following the Macron win, but quickly turned 0.8% lower to 1.0707. Stock markets are also not doing too well, with France's CAC 40 starting the week down 1.8% and the Euro Stoxx 50 off by the same amount. "The negative aspect for the markets of this rather comfortable election could however come from a quick decision in favor of a Russian oil embargo which would exacerbate inflationary pressures and economic slowdown (stagflation scenario) in Europe," said Frederic Leroux, fund manager at France's Carmignac. The selloff is also in tune with the recent downtrend seen across the board amid the Federal Reserve's tightening cycle, China's worsening COVID situation and Russia's war in Ukraine.

At home, Macron still faces challenges to his pro-business overhauls of the French economy. The "gilets jaunes" protests of 2018 - triggered by a green fuel tax and rising prices - hit his administration in the early days, and could resurface with inflation running at a record clip. Macron has also tried to get through pension reforms by raising the retirement age from 62 to 65, which saw nationwide strikes and protests in 2019 until the pandemic brought them to an end. Other issues to contend with include tax cuts, rules on hiring and firing employees, as well as the general high cost of living in France.

Up next: Much of Macron's future governing style will be dependent on legislative elections in June, though Le Pen's National Rally has a history of struggling to win parliamentary seats. If Macron scores another big majority in the National Assembly (like he did last time), he will be able to continue his agenda without paying too much attention to the other camp. Both sides also face stiff competition from the La France Insoumise party on the far-left, with firebrand Jean-Luc Mélenchon nearly qualifying for the presidential runoff after winning 22% of the first-round vote on April 10.

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