Markets await the closest French election in years

Outlook

An unprecedented four candidates have high hopes of getting through to May 7’s second round of the French election. Nonetheless, market nervousness is less than during the 2012 election, with centrist Emmanuel Macron, whose economic policies prioritise growth, the favourite to win. Marine Le Pen, the anti-immigration National Front leader, is expected to be second.

However, the late surge past the conservative Francois Fillon by Jean-Luc Melenchon, the Left Front leader, raises a prospect of the second round being a choice between two extreme candidates. Melenchon proposes a 100-billion-euro stimulus plan funded by public borrowing, but the more populist Le Pen would likely win this run-off.

Impacts

• Both mainstream parties may face political fallout as neither of their candidates, Fillon and Hamon, is likely to reach the second round.
• The euro will temporarily rally if Macron wins; but without an established party, his policies may struggle to pass in parliament.
• In the event of a Le Pen/Melenchon run off, euro volatility and French bond spreads would rise as both want to hold an EU referendum.
• Yet both would find it hard to call a referendum as they would struggle to consolidate a presidential win in June’s parliamentary elections.