World stocks hit record highs on Tuesday, with investors’ relief at centrist Emmanuel Macron’s victory in the first round of the French presidential election supported by speculation about U.S. tax reform. Safe-haven assets such as gold and the Japanese yen retreated as opinion polls suggested Macron would easily beat far-right, anti-EU candidate Marine Le Pen in a May 7 run-off.
The yield gap between French and German short-term government bonds, a closely watched measure of political risk in the euro zone, tightened further after hitting a three-month low on Monday. “This (the second round) is going to be a non-event for the market,” said Commerzbank currency strategist Thu Lan Nguyen in Frankfurt.
“Markets have pretty much priced out the risk of a Le Pen victory, and rightly so, because the first round of the elections has shown that the polls in France were correct…and this increases the confidence in the polls for the second round…It’s highly likely that (Macron) is going to win.”
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European shares measured by the STOXX 600 index edged up by 0.2 percent, after rising 2.1 percent on Monday. French shares pulled back 0.1 percent, having risen 4.1 percent on Monday in their biggest daily gain since August 2012.
Euro zone bank shares edged higher after big gains on Monday. The European Central Bank said in a quarterly survey of lenders that while banks would tighten access to credit for companies in the second quarter, lending volumes were still expected to rise.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, hovering near its highest level since June 2015 hit earlier in the session, on its fourth straight day of gains. Japan’s Nikkei rose more than 1 percent to a three-week high. South Korea’s KOSPI also advanced 0.7 percent to its highest level since April 2015.
These gains helped push MSCI’s world stocks index, comprising shares from 46 countries to a fresh all-time high after chalking up its biggest rise since shortly after Britain’s vote last June to leave the European Union.
The euro added to Monday’s gains against the dollar, rising 0.2 percent to $1.0884, albeit off Monday’s high of $1.0940. The yen, however, pulled back 0.6 percent to 110.39 per dollar. Sterling rose 0.1 percent to $1.2806.
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The Canadian dollar fell 0.5 percent to C$1.3561 per U.S. dollar after the United States announced new duties averaging 20 percent on Canadian softwood lumber imports. French and German 10-year government bond yields rose and the spread between them hit its tightest since November at around 41 basis points. The two-year spread was its narrowest since late January.
TRUMP TAX TALK
With one of the year’s major risks to markets seen less acute, markets were also looking ahead to other factors, including U.S. President Donald Trump’s promise to announce on Wednesday “a big tax reform and tax reduction”. The Wall Street Journal reported Trump wanted to cut the corporate tax rate to 15 percent. The White House budget director told Fox News on Monday Trump’s announcement would focus on principles, ideas and rates.
“I’m becoming little concerned over the President’s big announcements, especially since we haven’t seen any major legislative achievement so far and he will be marking his 100th day in the White House this Saturday,” said FXTM chief market strategist Hussein Sayed in a note.
Gold, sought as a shelter for wealth in turbulent times, fell 0.4 percent to just under $1,270 an ounce. Copper reversed falls in Asia and headed higher, last trading 0.7 percent higher at $5,695 a tonne. Oil prices steadied after six straight days of losses. Brent crude, the international benchmark, was just 4 cents down on the day at $51.59 a barrel.
(Additional reporting by Nichola Saminather in SINGAPORE, Jemima Kelly, Jamie McGeever, Marc Jones and John Geddie in London)