The EU Markets Relief Rally

The first round in the French presidential election was held on the 23rd, with Emmanuel Macron and Marine Le Pen coming out in front, winning 24% and 21.% of the votes respectively. Le Pen is a right-wing candidate from the National Front party who is opposed to the euro and France’s place in the European Union. On the opposite side, Macron, who is currently leading in the polls, is a former investment banker who left the socialist party to found a centrist political party, En Marche!, and supports gobalization and a stronger European economic union.


European markets have seen some dramatic changes in the wake of this first electoral stage. Following Macron’s victory France’s CAC 40 index increased by more that 4%, reaching a nine year high. Germany’s DAX, an index consisting of the 30 major German companies, had climbed by 3.3% by the time the markets had closed, while the FTSE 100 in London rose to 7,264, recovering by 2.1% after a drop last week following the announcement of the UK general election.

The euro was also positively affected by the results, jumping a huge 1.5% to a value of $1.09. This increase has meant that the shares of European banks have risen to their highest level since December 2015. French bank, Credit Agricole, saw share prices rise by 10.86% while Barclays in the UK was up 5.4%. However, it is believed by many experts that the substantial increase in euro value, a five-and-a-half-month high against the dollar, may be no more than a one-day wonder, with currency analyst at MUFG Lee Hardman saying, “Now that the initial adjustment higher has taken place, we do not expect the French elections to have much further impact on the euro in the near-term.” While the euro had a good day sterling had its worst day against it since October last year, down 1.3% following the election results.


The effects of the election have been felt outside of the EU as well. Asian markets are experiencing a second day of gains, having reacted quickly to the result of the weekend. The Japanese index Nikkei 225 was up 0.4% on the morning of the 24th, while the Kospi index had increased in value by 0.1%. Closer to home, all three main US share markets have increased more than 1%, with the Nasdaq index reaching a record high, having appreciated by 1.2%, when markets closed on Monday 24th.


After the unexpected results of the Brexit vote and the election of Donald Trump it is unwise for people to take for granted the fact that Macron will win the second round of the election on the 7th May. Nonetheless, recent polls have shown that he is the firm favourite to win, a result which would guarantee France remains a member of the European Union.

Brexit for Businesses

With just three days to go until the UK referendum on whether to remain in the European Union, the opinion polls are still returning no decisive idea of which way Thursday’s vote will go and we are asking the question – what would Brexit mean for global businesses?

Wall Street growth investor Louis Navellier believes one of the sectors which will most likely be affected is the energy and commodity sector. With the Energy and Basic Materials sectors currently down by 2%, it is clear that investors are beginning to feel the uncertainty and this is being reflected in the market. Navellier believes that, after a rise in commodity prices at the end of the first quarter, a UK vote to leave would help the US dollar to rally causing energy and commodity-related stocks to suffer.


Increasing strength in the US is also worrying many UK businesses, including engineering giant Rolls-Royce. Last week the company’s chief executive Warren East spoke out saying that a Brexit would put investments at risk and give Rolls-Royce’s American rivals, such as General Electric and Pratt & Whitney, a competitive advantage.

The main factor in all of these worries is uncertainty. East claiming that the uncertainty about the outcome of the referendum, and the knock-on effect it will have, causing the company to put a lot of important decisions on hold for the moment. This uncertainty, coupled with that surrounding the run-up to the US presidential elections, is taking its toll on investment banking as well. Banking analyst Chirantan Barua recently predicted that a leave vote could cause investment banking fees to plummet by more than 30% globally, bringing deal-making to a halt, and meaning disastrous things for anyone working in Mergers and Acquisitions in London or New York.


But not everyone is worried, Invesco Perpetual’s Head of UK Equities, Mark Barnett, has said in Investment Week that the UK’s dynamic economy will enable it to adapt to any change resulting from a Brexit. Although the initial effects would be negative, he says, in the long term it is unlikely that there would be any real impact on the stock markets outside of the UK and the best businesses will have planned for both outcomes.

This is an opinion echoed by many global companies who have operations in the EU and the UK. Ingeborg Oie of medical technology company Smith and Nephew, says that, although the company believes the unified EU regime is advantageous – with overarching regulations across national borders allowing new innovations to be shared more quickly and cost-effectively – they do not believe that the referendum will have a significant impact on their ability to do business.


Amidst the widespread disagreement of what to expect financially from the referendum, there seem to be a few generally-agreed predictions. Whether or not it would be an economic disaster for the UK, Brexit may well give US an advantage over the UK in a time when the dollar is already strong, but this advantage could come at the cost of commodity prices. Secondly, Brexit probably would not impact huge multi-nationals decisively, but would certainly cause some damage if a lot of their work is done in the UK or EU. When it comes down to it, however, it would appear that the only thing that is certain is that the referendum is causing uncertainty.