European stocks and the euro surged amid speculation that Marine Le Pen’s far-right party may struggle to secure an outright majority in the French elections, easing investor fears of a radical policy shift in the region’s second-largest economy. France’s CAC 40 Index rose by 2.8%, marking its highest increase since November 2022. This jump followed the first round of voting, which revealed Le Pen’s National Rally leading President Emmanuel Macron’s centrist alliance by a smaller margin than anticipated. A stronger performance by Le Pen’s party could have heightened the likelihood of expansive fiscal policies in France, where the deficit already exceeds EU limits.
The Stoxx 600 Index in Europe climbed 1%, with banking stocks such as Societe Generale SA, BNP Paribas SA, and Credit Agricole SA each rising by over 5%. Meanwhile, US equity futures moderated earlier gains. The euro reached its strongest level since mid-June, and the yield spread between French 10-year bonds and German debt narrowed to its lowest in two weeks, indicating reduced risk perceptions.
The second round of voting in France is scheduled for July 7. The political scene is set for a period of negotiations, as in constituencies where three candidates qualify for the runoffs, the third-placed candidate can withdraw to help another mainstream party defeat the far right. Mohit Kumar, a strategist at Jefferies, noted that despite the uncertainty of the second round, the immediate market reaction is one of relief, as the probability of a Frexit scenario has diminished, and extreme policies are less likely to be implemented.
In corporate news, Boeing Co. has agreed to buy back Spirit AeroSystems Holdings Inc. for $37.25 per share in an all-stock deal valuing the supplier at $4.7 billion. This move reverses a two-decade separation as Boeing seeks to address its manufacturing defects. The US Justice Department is expected to charge Boeing with criminal fraud, giving the company a choice between pleading guilty or risking a trial, according to sources familiar with the matter.
Final Thoughts: The easing of investor concerns regarding the French elections has led to significant gains in European stocks and the euro. The upcoming second round of voting remains a key focus, but for now, the market reaction reflects relief and reduced fears of radical policy changes.
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