Au Revoir Frexit. Ciao Italexit

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On Sunday, May 7th/2017, the stock market friendly candidate, Emmanuel Macron, won the French presidential election 🇫🇷.

Two weeks prior, on April 23rd, in round 1 of the election we saw the political landscape narrow to Macron and Marine Le Pen, who is in favour of France leaving the Eurozone. Markets reacted very favourably when round 1 polls showed Macron in the lead. As a result April 24th Eurozone markets increased just under 5%, a significant increase for one day.

Recently the globe has been riddled with political uncertainty. This has been mainly commanded by the surprise results of Brexit and the election of US President Donald J.Trump. In the economic model developed by Pástor and Veronesi in the Journal of Financial Economics it was found that political uncertainty has a greater effect on the markets when the economy is weak. These election results coupled with the International Monetary Fund’s (IMF) downgrade of global growth has resulted in a significant risk premium making stocks more volatile and correlated. So right now overall markets thematically swing even more positively or negatively on global political news.

With Macron’s round 1 and now the complete election win the eurozone has seen increased investor confidence. The rejection of anti-eurozone candidates by first the Netherlands and now France has renewed strength and stability of euro (€). But political uncertainty with the eurozone is not completely gone yet. Since the financial crisis the Eurozone has experienced bailouts, high unemployment, political instability, and most recently a refugee crisis. In the next Italian election, to be held no later than May 20th/2018, the anti-establishment political party: Five Star Movement (M5S) is gaining momentum and poised to do well. Next up, Italexit 🇮🇹.