By Samuel Indyk

LONDON (Reuters – After incumbent French President Emmanuel Macron received a bigger share of the vote in the French elections, the euro traded higher while the spread between German and French bond yields narrowed.

Macron won 27.41% and Marin Le Pen took 24.03% of Sunday’s votes. Macron will be facing Le Pen in the runoff on April 24.

Le Pen’s victory in France could cause shockwaves in Europe, much like Britain’s 2016 vote to exit the European Union.

Macron had a better result in round one than 2017, but the lead was not enough to make the euro 0.3% more. It closed at $1.0910 after rising overnight to $1.0955, before falling to $1.0874.

French 10-year bond yields remained unchanged at 1.275%. They were close to their highest levels since mid-2015, 1.296%.

From 50.2 to 50.2 bps, the spread between French and German 10-year yields narrowed by 4 basis point (bps).

“While Macron’s first round lead over Le Pen was bigger than he managed in 2017, polls point to a much narrower race for the second round (53-47%),” Danske Bank analysts said in a note.

Markets will be closely watching polls over the next two weeks, with Macron’s election far from certain.

With the MSCI World Equity Index, which measures shares from 50 countries and is lower than 0.3%, equity markets were cautious.

However, the pan-European index was 0.7% lower than 40. The latter, however, performed better by 0.1%.

“You have to have a bias to the market overall – the bias in our mind is negative because of this combination of slowing growth, higher inflation and higher yields, tighter financial conditions,” said Hani Redha, multi-asset portfolio manager at Pinebridge Investments.

He said that Monday’s market weakness could have been mainly due to continued selling in U.S. Treasuries as well as European government bonds.

Ten-year Treasury yields shot up to 2.7840% during Asia-Pacific trade hours. It is the highest level since January 2019 and a 125-basis point increase so far in 2019.

Futures indicate that the Federal Reserve will raise rates by 50 basis points. Markets are racing to take in this risk.

This underscores the importance of U.S. March consumer price reports on Tuesday. There, the median forecast shows a jump of 1.2%. That would bring annual inflation up to 8.5%.

China’s inflation statistics surprised many by surprising on Monday. However, they are still quite modest at 1.5% year over year in March.

Still, the yields of China’s ten year government bonds dropped below U.S. Treasury yields Tuesday for only the 12th time.

After world consumers made plans to remove strategic stock crude oil from their hands, and while Chinese lockdowns lasted, oil prices dropped.

Futures traded lower at $100.50/barrel and down 2.4% at 95.92/barrel

After a gain of 1.1% last week, gold was unchanged at $1946.00 per ounce.