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France: optimistic markets after first round elections but strong shock with Le Pen victory

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Financial markets welcome Emmanuel Macron’s statement in the first round of the French presidential elections with cautious optimism. On the Paris Stock Exchange, the Cac40 stands out as the best index in Europe and there are positive reactions on the bond market and on the euro-dollar exchange rate. But pending the second round, on April 24, investors remain cautious and fear Marine Le Pen’s claim. A victory by the leader of the Rassemblement National, which in the first round garnered 23.4% of the votes, “would be a great shock,” said Neil Mehta, manager of the Bluebay Investment Grade Bond fund of Bluebay Asset Management, contacted by Adnkronos. The fear of the markets is that there will be a return to talk of ‘Frexit’, the exit from France from the euro and the European Union, with serious consequences on the stock, bond and money markets. Investors, Mehta continues, “in recent years have become accustomed to more optimistic policies in Western Europe, which have been one of solidarity and strong political action”. A context destined to be shaken from its foundations with a victory by the leader of the Rassemblement National. “Although Le Pen no longer speaks openly about ‘Frexit’, her policies, particularly at the budgetary, rule of law and trade level of the European Union, resume her past Eurosceptic tendencies.” In view of the runoff, the manager of Bluebay underlines, “investors should remain cautious, given the great risks and the possible resurgence of the fragmentation of the European Union”, despite high inflation and slowing growth in Europe. In the next two weeks, says Filippo Diodovich, senior market strategist of Ig Italia, “the watchword will be caution, we will see repositioning but not major movements”. In the event that Macron is re-elected “in the short term we expect a slight rise in the equity sector, but strong tensions if Le Pen wins”. Which could also be very strong if it were to promote a referendum on the permanence of France in the euro. “Which could trigger a wave of sales on France, which has a major debt,” explains Diodovich. The outcome of the French presidential elections will be decisive for the future of Europe. The European Union, underlines Willem Verhagen, senior multi-asset economist at Nn Ip, “is currently at a crossroads”, caught between a still incomplete monetary union structure and deglobalization, which requires more autonomy on geopolitics, defense, high-tech industries and power generation. And therefore greater integration, with a reform of the fiscal rules of the monetary union to make room for greater public investment and the possibility of making permanent the system of joint loans at the basis of the Next Generation Eu. statement by Le Pen. His victory, Verhagen continues, “could lead to a significant repricing of French and peripheral spreads, given that the risk of greater European fragmentation could be raised”. With consequences on the entire European stock market. The outcome of the vote, says Thomas Gillet, associate director for public sector valuations and sovereign at Scope Ratings, “will be critical to French public finances in determining whether the country has a president who makes reforms and is capable of governing with a parliamentary majority “. The implementation of reforms, he continues, “is vital for France to address economic and social challenges such as rising public debt, declining productivity and competitiveness, labor market rigidities, an aging population and energy transition “.

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