French elections: round one more expensive to hedge than round two? - Nomura

Analysts at Nomura explained that the market may quickly draw conclusions as to the winner in the second round once we know the final two candidates.

Key Quotes:

"If we take the second round polling as “pretty accurate” to within 4% of either candidate as it stands, barring any potential swing which we can’t rule out, the market would likely price in the probability of the winner between the final two candidates."

"This is what makes the first round so informative and why it may continue to be more expensive to hedge at this stage rather than the second round event which will reprice after the first round."

"This is especially true if the second round is a race between Emmanuel Macron and Marine Le Pen, as the difference is the most significant and Le Pen is viewed as the weakest candidate of the four in the second round. Jean-Luc Mélenchon is viewed as the second strongest after Macron in the second round, and the current 10% margin is less safe."

"Even though Mélenchon’s stance on the EU looks less aggressive than Le Pen’s, in terms of EUR reaction between the first and second round, Mélenchon’s victory could be more negative owing to uncertainty into the second round."