France: A market-friendly result which will help reduce the European risk premium

Counting down to French presidential election. Jeff Taylor, Head of European Equities team from Invesco shares his views on how the victory of Macron or Le Pen will impact France and the wider European economy and financial markets.

May 4, 2017 | Jeff Taylor

The essential thing needed to line European markets up for a positive reaction to the result of the first round of France’s presidential election was confirmation that one of the two main market-friendly candidates made it through to the second round of the election which takes place on 7 May. As predicted by the opinion polls, this has duly happened. Market-friendly centrist reformer Emmanuel Macron will face far anti-European right-winger Marine Le Pen.

The nightmare for the markets, a run-off between Le Pen and hard left-winger Jean-Luc Mélenchon, will not happen. Forget Frexit. Forget a major assault on the Euro project. The narrowness of the result in yesterday’s election result is not what matters from here. The French start over again with the second round vote and there is every reason to believe that margin of victory for Macron will be far larger than a cursory glance at the first round results might lead one to assume.

Opinion polls before yesterday’s result have consistently pointed towards something like a 60-64%: 36-40% vote in Macron’s favour, should he face Le Pen in the second round. Initial polls yesterday repeated this. What the French call ‘le front républicain’, i.e. basically make sure the Front National represented by Le Pen doesn’t win, is, once again, seemingly swinging into action.

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