EBC Markets Briefing | French stocks eye relief rally after leftists’ victory

European shares fell on Friday, weighed down by losses in banks and energy stocks as investors became more cautious ahead of the second round of voting in French parliamentary elections.

The latest result shows France will face potential political deadlock after elections on Sunday threw up a hung parliament, with a leftist alliance unexpectedly taking the top spot but no group winning a majority.

Voters delivered a major setback for Marine Le Pen's National Rally, which had been expected to win the second-round ballot but ended up in the third spot, according to pollsters' projections.

A key question is whether the leftist alliance will stay united and agree on what course to take. Macron should ask the leftist group to form a government as it is the biggest group in parliament.

Investors should buy French stocks before Sunday’s elections because the market is likely to rebound in either of the two most probable outcomes - no majority and RN absolute majority, according to Morgan Stanley.

French financial markets have come under selling pressure since President Emmanuel Macron called for a snap election last month, with concerns that a far-right win could add to worries over fiscal sustainability.

The CAC 40 has been stuck in a trading range since mid-June. It looks technically neutral but clearer political scene in Europe could help the oversold market register more gains, which will be confirmed by a rally above 7,800.

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