French Presidential Election Outcome Raising Market Anxiety

No majority win will result in a 2nd round in May 7

French voters will cast their ballots in the presidential elections on Sunday, April 23. The results will have a significant impact on the EUR as the tight 4 way race has could result in a variety of uncertain scenarios. Currently four candidates: Marine Le Pen, Emmanuel Macron, Francois Fillon and Jean-Luc Melenchon are close to evenly splitting the vote amongst themselves which means that regardless of who wins, it won’t be a majority win. The second round will be held on May 7, but as more voters grow tired of the campaign and the fact that their vote will only decide who goes through to the run-off absenteeism expectations are high complicating matters even more. The EUR will be priced according to the eventual combination of the two politicians who go through with the best case scenario for the single currency the more market friendly Macron and Fillon and at the other end of the spectrum both extremists candidates Le Pen and Melenchon.

Marine Le Pen has been the highest profile candidate running on a protectionist platform and is the biggest eurosceptic. Le Pen poll numbers have always put her through in the second round but always losing by a wide margin as her view are too polarizing and voters will default to their second choice if their candidate did not make it to the run off. The French presidential campaign has been so volatile that Macron, the most inexperienced at this stage and with a new party and Melenchon have quickly built strong momentum, but also signalling the fickleness of voters at this stage.

Political uncertainty has increased its influence on global markets after the shocks of the Brexit referendum outcome and the election of Donald Trump. Pollsters were pointing to an altogether different result for both which the markets had already priced in, only to be caught on the wrong side as forecasters had missed the mark. The already packed election calendar in Europe just got another entry as the British Prime Minister Theresa May called for a snap election on June 8. The French presidential elections will be eclipsed by the parliamentary elections in June 11 where another lack of majority is expected leading to a comprised cohabitation between political parties.

 

The EUR/USD gained 0.048 in the last 24 hours. The single currency is trading at 1.0717 and has stayed on a tight trading range that has seen the euro up as Macron’s poll numbers rise, but remains pressured by the ghost of high abstention numbers as there is almost a guarantee of a second round in the French elections this weekend. The tight race has put the worst case scenario for the markets of two extreme candidates making it through to the second round with little possibility of consolidating a coalition in the upcoming parliamentary elections.

The Brexit referendum as well as rhetoric from Le Pen has resonated with part of the French electorate which while not a high possibility Frexit is still in the cards putting downward pressure on the EUR as the stability of the Union is once again threatened. MarketPulse VP of Research Dean Popplewell wrote about the different French election scenarios.

The economy of the European Union has shown signs of life and while not completely out of the woods it has given more breathing room to the European Central Bank (ECB) that after reaching negative rates and a massive stimulus program was running out of monetary policy tools to boost growth. The International Monetary Fund (IMF) has upgraded global growth, but now the biggest risks come from more protectionist governments and their quest for one-sided gains that appear to be directly lifted from the political campaigns around the globe.

Market events to watch this week:

Friday, April 21
4:30am GBP Retail Sales m/m
8:30am CAD CPI m/m
Saturday, April 22
All Day OPEC Meeting
Sunday, April 23
All Day French Elections

*All times EDT