Outcome of the French Presidential Elections

Results

The results of the second round of the French presidential election did not bring any surprises. Emmanuel Macron won 66% of the votes and will become the next President of the French Republic, as predicted by the opinion polls.

The voter turnout rate (75%) was lower than expected, but did not change the trends given in the opinion polls.

Market Reactions Are Fairly Positive

The equity futures markets opened up by less than 1% for the Eurostoxx index and for the CAC40.

Interest rates are falling slightly in France (-1bps to 0.83%) and rising in Germany (+1bp to 0.42%): the OAT/Bund spread is at 40bps vs.  42bps at Friday’s close. The adjustment on the bond markets is light

As expected, the euro is appreciating slightly vs. the dollar (to 1.099) and vs. the yen (124 yen to the euro).

The ounce of gold is trading at $1230, unchanged.

Analysis

Mr. Macron was significantly leading the opinion polls for the second round against Mrs. Le Pen (the latest estimate published on Friday 5 May was 62% to 38%). His reformist and pro-European economic policy reassures the financial markets.

The financial markets are showing a slight relief because the unlikely risk scenario has disappeared. But the forthcoming elections will continue to occupy people’s minds: the French legislative elections on 11 and 18 June and the important question about who will obtain the next majority in Parliament. This purely French debate should have little impact on the financial markets. In addition, other European elections are approaching (UK general election in June, German general election in September). But what is potentially more risky is Italy’s election — scheduled for February 2018 — which might be brought forward to this year.

Remember that we recently downgraded our short-term recommendation on the equities asset class. Indeed several risks continue to weigh on the markets in the short term: obviously the political risk in Europe but also the issues in the US (the monetary policy tightening underway and the implementation of reforms under the new Trump administration, including the protectionist aspect that may prove significant). At this stage, we are sticking to our strategy: we remain neutral on equities, and positive on eurozone markets which should outperform the US, a very expensive market which is pricing in a lot of good news (neutral). 

Economic growth and inflation fundamentals are on a good track; we keep our cautious stance on government bonds.