Europe midday: French stocks fall after Paris shooting

European stocks were mixed on Friday with the CAC 40 sliding after the Paris shooting fuelled uncertainty about the French presidential election.

At midday, the Stoxx Europe 600 index was flat at 378.04 as France’s CAC lost 0.52% to 5,051.33 points, while Germany’s DAX rose 0.12% to 12,042.29.

The Paris benchmark fell after a gunman killed a police officer on the Champs-Élysées late on Thursday, which was claimed by the so-called Islamic State. Two others were wounded and the attacker was shot dead by the police.

French Prime Minister Bernard Cazeneuve insisted that the attack would not prevent the first round of voting on Sunday from going ahead.

Opinions polls still show that centrist europhile Emmanuel Macron and anti-EU National Front leader Marine Le Pen will make the final run-off on 7 May, but far-left eurosceptic Jen-Luc Mélenchon and Conservative François Fillon have started closing the gap on the two frontrunners.

But with about a third of voters undecided, any two of the top four candidates could go through to the final round with official campaigning stopping at midnight on Friday.

Dankse Bank strategists suggested the attack may swing some voters towards Le Pen and said a high-risk scenario of a Le Pen-Melenchon second round run-off could "easily see a sharp equity market sell-off given possible ramifications for the French economy... a sell-off in French government bonds... the EUR/USD falling to the lower part of the current range of 1.04-1.10".

Michael Hewson, chief market analyst at CMC Markets, said that markets are starting to price in the prospect that Macron will probably win a contest between either Le Pen or Mélenchon.

“Let’s hope [Macron] doesn’t get squeezed out, particularly in light of last night’s terrorist attack in Paris, which given the tightness of the polls, could influence events, leaving investors to face the prospect of a face-off between Marine Le Pen on the right and Mélenchon on the left. Any such outcome is unlikely to be well received by the markets.”

In currency markets, the euro was down 0.2% against the dollar to 1.0696 and was flat versus the pound at 0.83635.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said that a final between Le Pen versus Fillon or Macron is expected to be positive for the euro, given that she has about a 60% chance of losing the final round of the election.

“If, however, she paves her way to the Élysée Palace, the euro is widely expected to depreciate toward the parity or below against the dollar.”

Meanwhile, Brent crude and West Texas Intermediate were unchanged at $53.04 and $50.75 per barrel, respectively.

On the data front, business activity in the eurozone hit a six-year high in April. Markit’s flash composite purchasing managers’ index rose to 56.7 from 56.4 in March, which is the best reading since April 2011. Economists had been expecting a drop to 56.3.

The flash eurozone manufacturing PMI edged up to 56.8 in April from 56.2 the month before, while the services PMI increased to 56.2 from 56.0 in March.

France’s composite PMI rose to 57.4 from 56.8 in March, which was a 71-month high, but Germany’s fell to 56.3 from 57.1, marking a two-month low.

In corporate news, Borussia Dortmund gained 3.06% after it emerged that at 28-year-old man has been arrested with last week’s bomb attack on the team bus in order to make money from the fall in the German football club’s share price.

Software AG climbed 8.13% after the German technology company posted a smaller than expected fall in earnings.

WS Atkins rose 4.94% after Canada’s SNC-Lavalin Group said that it will by the London-listed engineer for £2.1bn. SNC-Lavalin slipped 0.69%.

Danone added 2.39% after the French dairy food company lifted its guidance for its earnings per share in 2017.