The French Presidential election is just around the corner and investors around the world keep a close eye on the market reaction in light of the huge uncertainty surrounding the outcome of this major event. Five frontrunners are fighting in the most contested election in recent French history, the result of which will determine Europe’s future. The battle between pro-Europeanism and Euroscepticism dominates the election race, with Marine Le Pen of the National Front competing neck-and-neck with pro-EU candidate Emmanuel Macron.

The first round of voting is held on Sunday 23rd April and if there is no initial absolute majority for one candidate, a second run-off will follow on Sunday, 7th May.

Most mainstream analysts agree that Le Pen will lose the second round by a large margin, with the idea being that many Fillon and Mélenchon supporters would go towards Macron rather than Marine le Pen. However, if one thing is certain in 2017 is that polls have been drastically wrong, and quite possibly the outcome of the upcoming election will rock Europe and the European Union to its core. The key touchstone that flags unease among investors is the yield spread between German and French bonds, which has widened from 0.50% in the beginning of the year to 0.75% in April. The anxiety over the election outcome drags investors away from the French fixed-income market pushing the debt quality to those seen in semi-peripheral states of the euro zone such as Italy or Spain.

Whether right or left wing candidate whose pledges feature sweeping reforms ensures victory in the first round of elections, European currency and French debt are projected to plunge as the risks of Frexit scenario will crop up. Nevertheless, with a centrist nominee assuming the reins, the case for uniting the nation under dovish political course would also be tricky, considering almost 40 percent of a nation ready for radical changes.

 

Who are the main candidates, where they stand on key issues and the latest poll numbers*

Marine Le Pen | National Front | 23%

  • Wants to pull France out of the Eurozone
  • Calls for a referendum on EU membership
  • Impose tax on foreign workers and imports
  • Hold unrestricted immigration to the country

Emmanuel Macron | Independent | 22.3%

  • Centrist, pro-European candidate
  • Wants to cut government spending by 50%
  • No change to the retirement age for five years and to retain the 35-hour working week
  • Defends merging public and private sector pension schemes

François Fillon | Republican | 19.8%

  • A supporter of liberal economic policy
  • Proposes major cuts in the public sector
  • Reductions in corporate taxes and the wealthy
  • Hopes to reform the Schengen agreement and impose tough rules for non-EU citizens who commit offences within the bloc

Jean-Luc Mélenchon | Unsubmissive France | 19.3%

  • An outspoken critic of the European Union which he views as corrupted with neoliberalism
  • Calls for EU membership referendum
  • Backs overhauling the EU and pulling France out of NATO
  • Aims to increase the minimum wage and social security payments

Benoît Hamon | Socialists | 7.8 %

  • Socialist candidate
  • Proposes a universal monthly income for all citizens
  • Plans for legalising cannabis and euthanasia
  • Impose tax on robots

*Source: Bloomberg. Poll numbers are indicative and are subject to change.

 

Expected Market Impact

The 2017 French Presidential Election is deemed one of the most unpredictable elections in French history and is likely to have big surprises in store for global markets.  However, the prevailing scenario is that Macron and Le Pen will most likely qualify for the second round.

What if Le Pen wins?

A Le Pen victory is expected to cause severe market upheaval and would put the Euro under significant selling pressure with economists predicting the common currency would tumble to a 15-year low. Also, should the National Front leader perform better than expected in the first round on 23rd April, could spark an immediate market reaction in the fortnight before the second round.

Despite a “reflective” angst among the investors when imagining Le Pen winning the race, her 22-page program still lacks crucial details on negotiations about EU membership and restoring Franc as the national currency. The significance of these matters was strangely played down while highlighting an all-embracing plan from an immigration to preserving national language – a hectic attempt to stand on the competence of the party. In this case, it’s not clear what represents more cause of worries for investors – her radical political proposals or a shortfall of data on her policy.

What if Macron wins?

On the other hand, a Macron victory is deemed to be supportive for the markets, especially for Eurozone assets including the Euro and equities which are projected to experience a significant relief. This is due to his promises to cut corporate taxes and add up 50B Euro to public spending – a sort of “reflation trade” seen in the US after Trump’s election.

No matter the election outcome, be sure to position yourself to trade this market-moving event with Tickmill and take advantage of great trading opportunities.

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