Donald Trump’s unexpected victory unleashed animal spirits in the US, sending stocks to all-time highs and spurring an advance in the dollar. Can we expect the same from Emmanuel Macron’s win in France?

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The result is certainly risk-on. Since the first round vote indicated an easy route to the Elysee Palace for Macron, the euro has popped to a six-month high, while European stocks, led by banks, have found favour again. The DAX in Germany has notched record highs, while the CAC 40 in France is at post-crisis peaks.

However, with the outcome of the vote largely priced in we've seen a pretty muted reaction from markets on Monday morning (May 8th). EURUSD jumped above $1.10 on the result but quickly eased back to the comfort of $1.097. 

Equity markets can best described as slow - the DAX ticked up a touch, while the CAC 40 has dropped in early trading. A case of buy the rumour sell the fact in evidence today but that longer term analysts seeing an improving situation for European assets. Citi describes it as the Make Europe Great Again (MEGA) trade.

The decline in the political risk is a major factor for improving macro sentiment.  The risk of a ‘Frexit’ has been kicked down the road for at least another 5 years. Italy presents the next major risk but arguably this result and that in the Netherlands earlier this year suggests the populism is waning for now.

Investors are now turning their focus on what Macon can actually achieve. This result has been pretty well expected. Markets want to know whether he's a lame duck - parliamentary elections will be key. His stint in the economy ministry failed to deliver meaningful reforms, but this time he is the president with his own mandate.

For the euro, a lot also hinges on the European Central Bank.

ECB board member Yves Mersch has recently stated that the bank is close to saying risks are balanced, in line with the stance of the Federal Reserve. If the ECB changes it language it could deliver a significant boost to the single currency.

Fundamentals are improving as better growth and inflation data that may nudge the ECB closer to tightening. The key is whether a Macron win coupled with the better data will make central bank think risks are no longer ‘tilted to the downside’. Even if it does view risks as balanced, it looks set to continue to implement policy as set out already.

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