By Jemima Kelly
LONDON (Reuters) - Centrist Emmanuel Macron and far-right leader Marine Le Pen are set to face each other in a May 7 runoff for the French presidency after coming first and second in Sunday's first round of voting, early projections indicated.
Below are reactions from economists, analysts, fund managers and other market experts.
PAUL LAMBERT, LONDON-BASED FUND MANAGER AND HEAD OF CURRENCY MANAGEMENT AT INSIGHT INVESTMENT MANAGEMENT
"All the polling that we are seeing would suggest that in the second round it would be very difficult for Le Pen to make major further gains, while Macron should pick up significant further votes. I think people will be fairly confident that Macron will win in the second round and the market will be relieved by that. The euro will benefit from the perceived decline in the break-up risk in the euro area.
It was expected that Macron would get through so I’m not sure there will be significant further (euro) moves tomorrow. The euro might see a little bit more strength over the coming days and a tightening of French bond spreads against Bunds, generally 'risk-on' currencies will probably do quite well, peripheral bond yields come down and probably upside in European stocks."
ROBERTO PERLI, WASHINGTON-BASED PARTNER AT ECONOMIC RESEARCH FIRM CORNERSTONE MACRO, AND FORMER SENIOR STAFFER AT THE FEDERAL RESERVE
"There should be some reversal of the safe haven flows that we saw in the last month. To the extent that the worst possible outcome did not happen, or will not happen, then I would expect some relief and upward pressure on term premia and on rates in the U.S. bond market. I don't expect it to make up everything lost in the past month because there is still a second round and some caution that you never know what is going to happen.
So far pretty much everything is in line with expectations with the euro higher. The biggest headline is that the polls were right, which reduces the risk quite a bit for the market. Investors can move on and keep only an ear to France, where there is now a high hurdle for Le Pen.
The second round polls are not even close to being within the margin of error, so it's really hard to imagine at this point that Le Pen is going to win. The unknown is how much the dissatisfied portion of Melenchon's supporters go to her in the second round, and some probably will. But it's very hard for her to put together the 50 percent of the vote."
RICHARD MCGUIRE, HEAD OF RATES STRATEGY AT RABOBANK IN LONDON
"On the face of it, the results are risk-positive. The assumption now is that centrist voters will rally around Macron, denying Le Pen the presidency and hence this will effectively be a pro-establishment, pro-European result which will be positive for risk appetite on Monday morning.
We are likely to see a notable tightening of European sovereign spreads and this would also be positive for the euro and stocks.
But the staggering of the election results this year means the exit polls have to be taken with a degree of caution. The exit polls for Brexit and Trump were wrong so only time will tell."
TIMOTHY ASH, LONDON-BASED ECONOMIST AT BLUEBAY ASSET MANAGEMENT
"Despite all the hype about the rise of populism, 60 percent of voters went for mainstream candidates. With the Afd in the wane in Germany, it seems like Trump marked the turning point for electorates playing the protest vote. In an uncertain world they rather go for what they know best and want to take fewer risks. That could be the bigger story for 2017 - seen in Dutch elections, maybe UK and very likely Germany."
OCTAVIO MARENZI, CEO OF CONSULTANCY OPIMAS IN PARIS
"The French have resoundingly rejected first, the establishment, with neither of the two major parties qualifying, and secondly, socialism, with no left-wing candidate qualifying and the Parti Socialist imploding. Now, Marine Le Pen has her work cut out for her, and her party will have to work feverishly to persuade voters to accept her message. In terms of economic policy, her platform is surprisingly similar in many aspects to far-left wing candidate Mélenchon. Luckily for financial markets, her odds of winning are remote.
Macron will be reassuring to markets, with his pledge to lower corporate taxes and to lighten the administrative burden on firms. He basically represents continuity. While the markets would have preferred Trump-style deregulation, no candidate, including Macron, would dare touch such an agenda in France."
PHILIPPE WAECHTER, PARIS-BASED CHIEF ECONOMIST AT NATIXIS ASSET MANAGEMENT
"Firstly it's a win for the polls, which were very accurate. There’s now a strong Republican front which is crystallizing, so a large part of the right and centrist left will support Macron. Macron will very probably be president.
The momentum behind him will lend him considerable weight in the National Assembly, even if he does not get an absolute majority (in the legislative elections). He should have the capacity to implement his policies.
I think the market reaction will be pretty positive – the euro should hold up pretty well, and the French-German spread should pare back. Stocks are likely to show relief after the recent uncertainty. That doesn’t mean we’ll see stocks rallying throughout the day, but at least a first opening movement upwards."
KARIM BASTA, CHIEF ECONOMIST AT III CAPITAL MANAGEMENT, IN BOCA RATON, FLORIDA
"The short-term market reaction will be risk-on. There were a lot of hedges put in place for the adverse outcome with lower bond yields, stocks and euro. Those will probably get lifted in the next few days. That Europe existential risk is not over forever but certainly I don't think it will be a focal point for a while.
Markets are going to like it. It's not the best-best outcome in terms of removing all risk. But certainly this is better than the most feared Melenchon-Le Pen outcome. The polls were actually right in this case and they have been showing Macron well ahead ... so that will give markets more confidence.
KATHLEEN BROOKS, RESEARCH DIRECTOR AT CITY INDEX IN LONDON
"This was the expected result, as predicted by the pollsters who were correct...thus one could assume that the market reaction has already been priced in and any further upside could be short-lived. However, the market reaction could be stronger than expected as investors’ begin to price in an easy win for Macron in the second round, and we could see euro/dollar rise to $1.12, the high from before the U.S. election last year.
Tonight’s result is market positive for a few reasons: firstly, Macron is a politically stable, centrist candidate, almost like France’s Obama. Even though he would be France’s youngest-ever president with no party behind him, he is considered a safe pair of hands. Secondly, it helps to solidify the future of the EU and the euro, something that Marine Le Pen wants to destroy.
At the start of a new week the euro is surging, and we expect a large gap higher in the DAX and CAC 40, we could also see French bond yields fall on Monday, once this result is confirmed."
(Compiled by Jemima Kelly; editing by Susan Thomas)