Markets’ relief rally will be brief following Macron win, amid uncertainty

Despite Emmanuel Macron’s historic win in the elections in France on Sunday night, there’ll only be a modest rally due to the intensifying geopolitical and economic issues.

Macron was re-elected as French president for a second term, winning 58.54% of the vote, whilst far-right challenger Marine Le Pen won 41.46%.

The markets have avoided the shock and uncertainty that would have sent them into turmoil should Marine Le Pen have won, as she would have placed the country on a very different track.

However, due to Macron’s re-election, European markets and the Euro will likely experience a rally thanks to his pro-business, pro-Europe agenda. Yet this may be short-lived as his election victory has already been priced-in by the markets.

The focus will soon shift to other geopolitical issues impacting global markets, such as the Covid situation in China. The world’s second-largest economy is facing its worst outbreak since the beginning of the pandemic, as major cities went into lockdown.

Yet surprisingly, the People’s Bank of China (PBOC) recently decided against lowering its policy rates, despite the steep economic downturn and calls from Beijing for monetary support.

Other reasons for low market sentiment include red-hot inflation, rate hike forecasts from the majority of central banks and ongoing global uncertainty stemming from the war in Ukraine.

As such, against this turbulent backdrop, the markets will breathe a sigh of relief, albeit momentarily, with the outcome of the elections in France.

This election has major global implications way beyond the French border. It’s the second-largest economy in the EU, the only one with a UN Security Council veto, and its sole nuclear power.

Furthermore, as the new German Chancellor is faced with mounting scrutiny over the handling over the war in Ukraine, Macron is, arguably, the most powerful leader in Europe at the moment.

His legacy will be set over the next five years as he is unable to run again, so his agenda will probably be bolder.

Although markets have avoided the upset of a Le Pen victory, investors must avoid complacency. Key global headwinds remain that could negatively affect returns. Nevertheless, volatility always brings greater investment opportunities.

As such, investors should review their portfolios to make sure they are on course to reach their long-term financial ambitions.

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