Fundamental Analysis

CAC Jumps as Macron Wins Solid Majority


The CAC index has posted strong gains in the Monday session, buoyed by President Emmanuel Macron's decisive electoral win. The index has gained 0.99% and is currently trading at 5316.00 points. On the release front, it's a quiet start to the week, with no economic indicators in France or the eurozone. On Tuesday, the eurozone releases Current Account.

France's long election season is finally over, after the second round of parliamentary elections on Sunday. President Emmanuel Macron's En Marche easily won a majority of seats in the National Assembly, garnering about 61% of the vote. This was somewhat lower than recent polls, which had predicted that Macron would win as much as 80% of the seats in parliament. Still, it's an impressive victory for the young and charismatic Macron, whose party is barely a year old. Macron ran on a pro-business agenda, promising to relax regulations and reform labor laws in order to make the French economy more competitive, but France's powerful trade unions are sure to push back against any legislation that will take away rights or benefits from workers. The unions have not shied away from going on strike or organizing mass protests in past conflicts with the government, so Macron will be hard-pressed to implement reforms while keeping peace on the labor front.

Macron has big plans for France, and not just on the economic front. The French president is a strong supporter of an integrated Europe, and has indicated that he will work closely with Germany in order to strengthen European unity. In a meeting with Theresa May last week, Macron said the "door remained open" for Britain to return to the EU, but as this will not happen, the pro-European Macron can be expected to support a hard line by European negotiators.

A full year after the Brexit referendum, which stunned Britain and the continent, British negotiators meet with their European counterparts on Monday in Brussels. A month ago, Prime Minister Theresa May was confidently peddling a hard Brexit, putting Europe on notice that if she didn't like what the Europeans were offering, the UK would leave without a deal. However, May was humiliated in the UK election, and will be forced to govern with a minority government that is dependent on the support of a small Irish party. May's defiant tone has been replaced by a more conciliatory Philip Hammond, the British finance minister. Hammond has said that he wants a business-friendly and pragmatic Brexit and that no deal would be bad for the UK, although he won't accept an agreement that is aimed at punishing Britain. As for the Europeans, they have insisted that there will be no negotiations about a new trade deal, prior to progress being made on three key issues: (1) the legal status of EU citizens in the UK; (2) the status of the border between Ireland and Northern Ireland; and (3) the financial obligations of the UK to the EU. On the weekend, the EU's Economic and Financial Affairs Commissioner Pierre Moscovici, said that the European position was not 'hard ' or 'soft'. but rather 'amicable and firm'. There is little doubt that the EU will be firm, but given the bad blood between the two sides, it will be a pleasant surprise if the negotiations are indeed 'amicable'.

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