French shares staged a reduction rally early Monday after outcomes from the primary spherical of the nation’s snap election raised expectations of a hung parliament.

The far-right Nationwide Rally occasion and its allies gained 33.1% of the vote, the left-wing NFP alliance was second with 28% and Macron’s coalition secured 20%, France’s Inside Ministry stated Monday.

France’s benchmark CAC 40 index was 1.9% larger by 8:47 a.m. London time, off earlier highs.

“The election, in the long run, tells us just about what we knew earlier than, which is that the almost definitely state of affairs stays a hung parliament,” Sebastian Paris Horvitz, director of analysis at La Banque Postale Asset Administration, instructed CNBC’s “Squawk Field Europe.”

From a market perspective that’s the “least dangerous” choice, he added.

It comes after economists at Citi and elsewhere warned that an outright victory for both the far-right or leftist alliance might trigger a extreme market shock given their tax and spending plans, with the potential to spiral right into a debt disaster.

“A hung parliament seems possible and would, we consider, be seen as a optimistic growth for European belongings, as markets would worth in insurance policies on tax and immigration that will extra carefully resemble the established order,” Matthew Ryan, head of market technique at monetary providers agency Ebury, stated in a observe Monday.

“Following their robust displaying within the first spherical, the potential for a majority for Nationwide Rally stays in play, nonetheless, which might act to cap positive factors within the euro within the coming days.”

The second spherical of the vote is due on July 7 and to win a majority, the Nationwide Rally would wish to safe 289 out of 577 seats. Present candidates now have till Tuesday night to verify whether or not they are going to be continuing to the ultimate spherical.

Horvitz famous {that a} hung parliament is uncommon in France.

“Usually you’ve gotten a majority to control France … After the second spherical, perhaps we’re not going to have such a majority. And so we now have to determine how France will likely be ruled,” he instructed CNBC.

French 10-year bond yields hit their highest stage since November 2023 on Monday, buying and selling round 3.334%, whereas their unfold with German bond yields additionally narrowed.

Horvitz added that French borrowing prices, which have soared versus Germany’s for the reason that election was referred to as, are more likely to stay elevated. That may possible result in continued stress on belongings linked to bonds, together with financial institution shares and a few utilities, he stated.