European stocks and the euro pulled back on Monday from highs touched after Emmanuel Macron's emphatic but well-flagged victory in France's presidential election as investors' focus shifted from politics to monetary policy.
With the political risks that have dominated European markets in a year packed with elections seen receding, the European Central Bank is expected to have more room to tighten policy as the euro zone economic recovery gathers pace.
European equities dipped, with French shares, which hit 9 1/2-year highs on Friday, underperforming the wider market.
The euro dipped against the dollar, having risen in early Asian trade to just above $1.10 when opinion polls signalled the scale of Macron's victory over anti-euro nationalist Marine Le Pen.
It was a similar story in euro zone government debt markets: the premium investors demand to hold French rather than German benchmark 10-year bonds narrowed to its tightest in six months as markets opened on Monday, but then reversed.
“Investors will now go back to the basics of watching the underlying euro zone economic and inflation data and what implications it may have for monetary policy,” said Iain Stealey, a fixed income portfolio manager for JPMorgan Asset Management.
Although Macron's victory with his business-friendly vision of European integration ensured there was no repeat of the populist surges that saw Britain vote to leave the European Union and President Donald Trump elected in the United States, the result was widely expected and analysts had forecast no major market moves.
That said, world stocks, as measured by MSCI's 46-country world index held close to a record high as the main measure of Asia-Pacific shares, excluding Japan, rose 0.8 per cent.
Tokyo shares, resuming trade after a three-day market holiday, closed up 2.3 per cent at a 17-month high.
The pan-European STOXX 600 index was down 0.1 per cent, while France's CAC 40 index fell 0.6 per cent.
Wall Street looked set to open modestly lower as index futures, including those on the S&P 500, which earlier hit a record high, reversed direction and fell.
In currency markets, the euro rose to a six-month high of $1.1024 in early Asian trade but last stood at $1.0959, down 0.4 per cent on the day.
“This is purely because the win that we had in France was so well priced in,” said Jane Foley, currency strategist with Rabobank in London.
The safe-haven Japanese yen, having earlier fallen to a seven-week low against the dollar, also changed course and was last up 0.1 per cent at 112.56 per dollar.
The dollar index, which measures the US currency against a basket of its major peers, was up 0.2 per cent.
The gap between 10-year yields on French and German government bonds last stood at around 37 basis points, off opening lows around 33 bps.
The gap between yields in Germany and Italy, which faces an election before May 2018, rose to as high as 183 bps, up 10 bps from the day's lows.
Yields on lower-rated southern European government debt, seen most vulnerable to a reduction in the pace or scale of the ECB stimulus that has suppressed borrowing costs, rose.
Oil falls
Oil prices, which hit almost six-month lows last week on worries about a global glut of crude, edged up on prospects of output cuts agreed by the OPEC producers group and others could be extended. Brent futures rose 38 cents to $49.48 a barrel.
Gold, often sought as a bulwark against risk, rose 0.3 per cent to $1,231 an ounce.
Copper prices fell 1.4 per cent to four-month lows around $5,015 a tonne as Chinese trade data showed April imports of the metal dived 30 per cent from a month earlier.