The French stock market experiences a 2.5% increase, with the far-right party taking a lead in the election, but falling short of a majority.

• The CAC 40 index increased by 2.2% early Monday, marking a relief rally in French stocks.
• Sebastian Paris Horvitz of La Banque Postale Asset Management stated that the results suggest a hung parliament is the most probable outcome, which is the "least unfavorable" option for markets.

Early Monday, French stocks experienced a relief rally following the release of the first round of election results, which increased anticipation of a hung parliament.

On Monday, the Interior Ministry announced that the far-right National Rally party and its allies received 33.1% of the vote, while the left-wing NFP alliance obtained 28%, and Macron's coalition secured 20% in France's recent election.

By 8:47 a.m. London time, France's benchmark index had risen by 1.9%.

"Sebastian Paris Horvitz, director of research at La Banque Postale Asset Management, stated on CNBC's "Squawk Box Europe" that the election results confirm what was already known, which is that a hung parliament is the most likely scenario."

Generally, you have a majority to govern France. However, after the second round, we may not have such a majority. Therefore, we need to determine how France will be governed.

The potential for a debt crisis may arise if either the far-right or leftist alliance wins outright, as economists at Citi and other institutions have warned about the tax and spending plans of both sides.

According to Matthew Ryan, head of market strategy at Ebury, a hung parliament is likely to occur and would be viewed as a positive development for European assets. This is because markets would price in policies on tax and immigration that would more closely resemble the current status quo.

"The possibility of a majority for National Rally in the first round remains, which could limit gains in the euro in the coming days."

In order to win a majority in the second round of the vote on July 7, the National Rally must obtain 289 out of 577 seats in the National Assembly, which is France's lower house of parliament.

The deadline for candidates to confirm their participation in the final round is Tuesday evening. Some third-place finishers from the left and center are predicted to withdraw to prevent splitting the vote and contributing to far-right gains, increasing uncertainty about the outcome.

Who will succeed Gabriel Attal as prime minister, given that he is an ally of President Emmanuel Macron?

The National Rally party is hoping that its 28-year-old leader, Jordan Bardella, will become the party's next president. This would create a "cohabitation" scenario where the roles of president and prime minister are at odds, as Macron previously stated he plans to complete his term until 2027.

In the event of a hung parliament, where no party has an overall majority, the French Constitution allows for the continuation of the current budget, ensuring that areas such as pension payments are not disrupted, Horvitz stated.

Despite this being a crucial moment for Europe as it confronts defense risks, the energy shift, and sluggish French and German economic expansion, there is still no change.

Since the election, French borrowing costs have increased significantly compared to Germany's, leading to an increase in pressure on assets linked to bonds, such as bank stocks and utilities, according to Horvitz.

On Monday, French 10-year bond yields reached their highest level since November 2023, trading at approximately 3.334%. Despite this, their spread with German bond yields narrowed after hitting a 12-year high on Friday.