Europe midday: Stocks rally, CAC heads for nine-year high on French election relief

European stocks rallied on Monday after centrist Emmanuel Macron won the first round in the French presidential election, easing fears of a French exit from the European Union, while the euro continued to strengthen.

On opening, French stocks rallied 4%, with financials leading while the country’s bonds surged, lowering the yield on benchmark 10-year bonds by 10 basis points to 0.82%.

At midday, France’s CAC gained 4.52% to 5,288 and was on track for its biggest one-day percentage rise since August 2012.

The Stoxx Europe 600 index was up 2% to 385.70, while Germany’s DAX rose 2.97% to 12,406.64 and was also on course for a record closing high.

Macron will now face far-right, eurosceptic Marine Le Pen in the run-off on 7 May, with polls suggesting that he will be crowned the Republic's youngest ever president.

With 97.43% of votes counted, Macron had 23.86% to Le Pen's 21.43%. They will now go through to the final round as expected. Previous market jitters of far-left Jean-Luc Mélenchon possibly going through proved unfounded as he was left in fourth place, with scandal hit Conservative François Fillon in third place and Socialist Benoît Hamon in fifth.

Investors had feared that two eurosceptics would have been in the final round, raising concerns of a possible ‘Frexit’ referendum held in France on either membership of the EU or euro.

In his speech on Sunday, 39-year-old Macron, who has never held an elected office, said: “In one year we have changed the face of French politics". It is the first time in France that no candidates from either of the two main parties, Les Républicains and Socialists, have made it to the final round.

Late on Sunday, global markets jumped on the first exit poll that showed that Macron made it through to the final round, with the euro hitting a five-month high against the dollar at 1.0873, while investors fled from safe-haven assets such as gold, which sank over 1%. The euro traded above 1.09 earlier in the day before easing back.

On Monday, the euro lost a little momentum, hovering around 1.0835 at 0745 BST.

At Midday, the single currency was up 1.17% to 1.0854 versus the dollar, rose 1.09% against the pound to 0.84694 and gained 2.21% versus the yen to 119.52.

Financial stocks were particularly buoyed by Macron’s first round victory as fears over the currency subsided with French banks the biggest gainers. Shares in Credit Agricole jumped 9.9%, Société Générale surged 9.86% and BNP Paribas was up 8.48%.

Italy’s UniCredit climbed 10.48% and Germany’s Commerzbank was 8.52% higher.

However, Michael Hewson, chief markets analyst at CMC Markets, said that while investors are celebrating what looks like a significant blow to the populist movement it would be a mistake for politicians to think that France’s problems are over.

“Once the euphoria has subsided the next question is likely to centre around as to whether Emmanuel Macron can deliver on his campaign promises of getting unemployment down to 7%, tweak French labour market rules and reduce taxes at a time when over 40% of the French electorate voted for an anti-EU candidate, and remain disillusioned with the French political elite.

“France has consistently failed to deliver on its reform programs even when Sarkozy was president which means any new president is likely to find it similarly challenging, particularly since he will be expected to abide by the terms of the fiscal compact, unless Germany decides that budget responsibility no longer matters,” he said.

Gemany’s DAX also benefitted from better-than-expected business confidence data. The Ifo's business climate index rose to 112.9 in April from 112.4 in March, beating expectations for a reading of 112.5. This marked the index's highest level since July 2011.

The current assessment index edged up to 121.1 from 119.5, surpassing analysts' expectations of 119.5. The expectations index fell to 105.2 from 105.7, missing expectations for a reading of 106.0.

Meanwhile, oil prices advanced after falling 7% last week on concerns about rising US shale production despite the Opec-led pact to curb supply.

Brent crude was up 0.89% to $52.43 per barrel and West Texas Intermediate rose 0.95% to $50.10.