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Europe equities fall after French election

written by Bella Palmer

Paris, Frankfurt and London closed marginally in the red

European stocks dropped on Monday as investors digested a left-wing alliance win in French snap polls, where no single group won a majority.

The left emerged as the biggest group in France's new National Assembly, unexpectedly beating out the far right in a vote called by President Emmanuel Macron three years ahead of schedule.

Macron's centrist alliance secured fewer seats in parliament but held up better than expected.

The outcome, in which no bloc has an outright majority, has plunged the country into political uncertainty unprecedented in its recent history.

European equities bounced back from initial losses amid relief that the far-right National Rally (RN) of Marine Le Pen had not won a majority. But Paris, Frankfurt and London ended marginally in the red.

While the lack of a clear immediate winner from France's elections provided a short boost this morning, that optimism has been hard to sustain, according to Chris Beauchamp, chief market analyst at IG.

France's budget problems still need to be solved, and Sunday's result does not provide much hope that a resolution can be found quickly, he added.

Ahead of the vote, investors voiced concern about costly spending pledges by the far right.

There is also speculation as to whether a politically fractured France and a weakened Macron means that France's leadership position within the eurozone has been weakened, according to Rabobank analyst Jane Foley.

She said that "France's political and budgetary uncertainties" remain a negative factor for the euro.

Kathleen Brooks, head of research at XTB, said the left's pledges not to push forward with macroeconomic reforms could exacerbate concerns.

This is weighing on sentiment for now, however any downside could be limited as the horse trading around who will govern and how the government will be formed could take months, she added.


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