European Stocks Surge as French Shares Lead Post-Election Rally

European stocks gained on Monday, driven by French shares after the far-right National Rally party made significant gains in parliamentary elections. The CAC 40 index rose 1.6%, aiding the STOXX 600's 0.6% increase. Market relief stemmed from the perceived lower threat of a right-wing majority.

European stocks gained on Monday, with French shares leading the charge after the far-right National Rally (RN) party scored historic gains in the first round of parliamentary election, but by a smaller margin than what some polls had suggested.

France's blue-chip CAC 40 index jumped 1.6% to lead gains among regional markets, with the country's main lenders, including BNP Paribas, Societe Generale and Credit Agricole, advancing between 3.8% and 4.8%. That helped the region-wide STOXX 600 index rise 0.6%, snapping four consecutive sessions of losses.

The RN and allies had 33% of the vote, followed by a leftwing bloc with 28% and President Emmanuel Macron's centrists with just 20%. The final result will depend on days of horsetrading before the July 7 run-off. "The market is starting to understand that a right-wing majority is less likely and less dangerous. That narrative unfolding could continue to be a source of short-term relief for markets," said Ben Gutteridge, multi-asset strategies portfolio manager at Invesco.

French assets have taken a battering since Macron called a snap election last month. The CAC 40 closed at its weakest level in more than five months on Friday on concerns over France's fiscal discipline under the new government. European stocks came off session highs on Monday after a survey showed manufacturing activity across the euro zone took a turn for the worse last month as demand fell at a much faster pace despite factories cutting their prices.

Another set of data showed inflation fell in five important German states in June, suggesting that national inflation could decline this month. The European Central Bank (ECB) cut interest rates from record highs early in June and signalled further moves ahead as inflation eases, but it made no commitment on the timing of its next cut. Traders are pricing in a near 50% chance of another 25 basis point rate cut by September, as per LSEG's rate probabilities app.

ECB President Christine Lagarde is set to speak later in the day. Among individual stocks, Atos climbed 1.7% as the French technology company reached an agreement with a group of banks and bondholders on terms for its debt restructuring.

Nestle edged up 0.5% after its CEO said in an interview to a local paper that the Swiss food giant is targeting stable growth in sales volumes from the second quarter. Anglo American slid 2.9% after the miner suspended production at its Grosvenor steelmaking coal mine in Australia following an underground fire.

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