A Second French Revolution?
We decided to let the dust settle from the Sunday first round of French elections before we tried to ascertain a fixed bearing to address from this outcome. Needless to say, the results of the election almost create more questions than they answered.
The good news is that the “market horror,” scenario of a Le Pen vs. Melenchon run-off has been avoided. The not-so-good news is that the poll differences between the top two finishers, was smaller than the anticipated margins of error. This fact coupled with the combined percentage totals of the losing candidates most likely means that neither of the top two finishers may command a populist majority during the runoff.
While the polls showed that that Centrist Macron and Right-Wing Le Pen qualified for the second round of voting to be held on Sunday May 7th, these same polls are now predicting that the likely winner (if the election were held today) would be pro-European Union centrist Emmanuel Macron…resulting in him becoming the new French President.
What Can We Expect if Macron Wins?
As previously stated, it appears as though Mr. Macron currently has the inside track to be the next French President. If this were to happen how can we expect the financial markets to react to such news? If the current financial markets reaction to him making the May runoff is any indication, relief may be the key word.
If Macron becomes the next Chief Executive of France it would be expected that concerns regarding France leaving the EU would greatly ease. Mr. Macron is a huge fan of the EU and the Euro currency. In fact, European shares surged to a 17-month high after Emmanuel Macron advanced as the favorite in the runoff over his nationalist opponent. After opening to the best gains on record, the Euro scaled back as the week has advanced.
Macron, a committed globalist was the leading candidate as confirmed by a “snap” Ipsos survey late Sunday after the polls closed. The survey suggested he would win with 62 percent of the vote to Le Pen’s 38 percent. It is expected that macron would not only help to stabilize the European Union, but would also help integrate stronger support mechanisms…according to Azad Zangana, Senior Economist for Europe at Schroders Plc in London.
Mr. Zangana went on to say, “The contest is not over yet, but investors are likely to take comfort and to begin to think about the more attractive valuations that European equities offer.”
…And if Le Pen Wins?
At this point, most traditional survey houses have Le Pen losing in a runoff against Macron. This may be wishful thinking. With many unanswered questions in Macron’s background and the recent new terror attack in France leading up to the election, Le Pen’s supporters have been invigorated.
As for the effect that a Le Pen Presidency would have on the markets, most economists believe it would roil the currency and financial markets… at least in the immediate aftermath of her election. Le Pen is the French version of Trump. She wants to remove France from the EU, clamp down on immigration and support French labor organizations. Many see a vote for Le Pen as a form of “revolution,” when it comes to the current globalist view of the French government.
She is also someone who does not mince words when it comes to terrorism and the influx of radicals who see France as a country that can easily be over run. Le Pen has openly called for a much more aggressive law enforcement and military response to terror attacks and internal security for France.
The Smart Money…
At this point, a lot can happen between now and the May 7th runoff. Macron may be polling higher, but many attribute that to the entrenched, elitist views of the “old guard,” that supports a more globalist view of France…who happen to also control many of the polling organizations who are publishing those surveys.
Le Pen is no “shrinking violet,” and is more than able to go toe-to-toe with Macron in the very public ongoing policy debates they have been embroiled in. Macron is not without his own baggage as many believe he helped orchestrate much of the economic turmoil France has struggled with over the past several years. If not him directly… he shares many of the common public and financial policies that contributed to high unemployment and a weakened economy.
As Le Pen will undoubtedly highlight these past associations with Macron, it is possible that the polls could be wrong. As we saw with the last U.S. Presidential election….survey’s and polls are not infallible. However, it will most likely come down to how effective Le Pen can make the case that she is the best suited to keep France safe from future terrorist attacks. If Macron can successfully make a similar argument then he will most likely win the runoff.
The smart money says…the election is Mr. Macron’s to lose.
