Investors seem pleased with the outcome of the French election and appear more willing to pay attention to good economic news across Europe. Emmanuel Macron booked a convincing victory on Sunday, and as he takes early steps to form a government, rivals and other political figures are rallying to his side. Manuel Valls, formerly a Prime Minister with the Socialist Party, declared his party dead and threw in with Macron and the soon-to-be-renamed En Marche la République (Republic on the Move).

We raised our portfolio weight in Europe on April 28th with encouraging results so far, but our enthusiasm is tempered by Marine Le Pen’s strong showing, including majorities in parts of Hauts de France like Picardy. The legislative elections in June will give a venue for populist and anti-EU candidates to establish a stronger parliamentary presence and potentially deprive Macron of the ability to have a PM friendly to his worldview.

Handicapping possible outcomes, we see “Frexit” as increasingly unlikely, but a real contest to govern between globalists and populists may mean little gets done legislatively to address the structural problems holding back economic improvement in France. While the status quo may not be appealing to European citizens, the European markets do seem content. We will keep one eye on June and start looking forward to Germany later this year for a referendum on many of the same issues in the true engine of European unity and prosperity.