Eurozone stocks rose 0.3% amid relief that pro-EU parties looked on track to win a majority of seats in the European Parliament after recent elections. This was despite modest gains for Euroskeptic and far-right parties, who gained close to a quarter of seats in the parliament. However, more established centrist parties lost ground to liberals and greens.

As coalition building begins in earnest, there are a number of immediate implications for investors that we think bear watching:

* Brexit: The UK remains deeply divided, with roughly a third of voters supporting Nigel Farage’s new Brexit Party, and another third backing pro-remain parties including the Liberal Democrats. The outcome underlines the difficulty of building a consensus on a path forward for Brexit. Our base case is that the UK will be compelled to ask the EU for a third delay to its departure, increasing the chances of either a snap election or second referendum. A wide range of outcomes remains possible, including both a no-deal Brexit or continued membership of the EU.

* Italy: Despite its strong outperformance at the election, Italy’s right-wing Lega party has promised to stay with its anti-establishment partner M5S. We expect this will add to pressure on the coalition, which could be further exacerbated by budget negotiations starting in June. Lega leader Matteo Salvini has already vowed to reject budget cut requests from Brussels.

* ECB succession: The election outcome also has implications for the choice of the next ECB President. With provisional results pointing to a win for Germany's center-right, we believe Manfred Weber is best placed to become the next European Commission (EC) president. This in turn would tilt the ECB presidency toward either France’s Villeroy de Galhau, who is seen as more pragmatic and dovish, or to a Finnish compromise candidate. However, France’s Macron could yet push through Michel Barnier to head the EC, which would likely leave Germany to champion the more hawkish Jens Weidman to head the ECB. So while a pro-EU majority has held against rising anti-establishment parties, that doesn’t mean a smooth ride ahead. A more polarized EU parliament is less likely to agree on legislative proposals, while significant Brexit uncertainty remains. A further Brexit delay would see the pound trade in a range between USD 1.28 and USD 1.34 in our view. We are less constructive on Eurozone equities in our global portfolios, and remain cautious on Italian government bonds. For more on the ECB path , please see our report "ECB Succession Watch: European election review."