French stock market gains on bet Le Pen won’t win majority

European stock markets rose today amid signs France’s hard-Right would not win enough seats for an overall majority in legislative elections.

In the bond market, the premium that investors demand to hold French government debt fell from a 12-year high.

Investors hoped that there was now less chance that either the hard-Left or the hard-Right would have a free hand to roll out big-spending policies that could hurt France’s fiscal position, analysts said.

Marine Le Pen’s far-right National Rally (RN) party scored historic gains to win the first round of France’s parliamentary elections, but the final outcome will depend on days of alliance-building before next week’s run-off vote.

Fiona Cincotta, an analyst at City Index owner StoneX, said: “The market is experiencing a relief rally that NR looks unlikely to achieve an absolute majority.”

This result had been considered the worst-case scenario, given fears of high fiscal spending and mounting debt levels, which had pulled stocks and, particularly, banks lower heading into the first round of the election.

A hung parliament could lead to months of political paralysis and chaos, analysts say.

It could meanwhile “reduce the chance of a big spending splurge, but wouldn’t exactly help sort France’s fiscal position, which is already quite fragile”, said Neil Wilson, chief market analyst at Finalto.

At close, the Paris Cac 40 index was up 1.1pc. The German Dax was up 0.3pc, while the pan-European Stoxx 600 was up by a similar amount. The FTSE 100 was flat.

The gap between French and German 10-year sovereign bond yields – a gauge for the risk premium investors demand to hold French bonds – tightened by 0.06 percentage points to 0.74 percentage points.

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