The dust has now settled following the 1st round of the French presidential election, with that, we’ve seen candidates from the centre right, Fillon and communist supported, Melenchon fall by the wayside leaving the liberal centrist Macron and National Front leader, Le Pen, left to battle it out for the seat at the top of the table. Interestingly, the opening round was historic for France as neither candidate through to the run-off round are from the traditional powers of French politics; the ruling Socialist and centre-right opposition Republicans.
Le Pen took 21.53% of the votes which was the best yet for her National Front party. However, the pro-European Macron led the way with 23.75% of the votes in the first round – with Fillon urging his supporters to vote Macron and Melenchon’s far left followers unlikely to support a far right candidate, it could prove difficult for Le Pen to mount a serious challenge for the French presidency come the 7th of May.
As we know, candidate’s Macron and Le Pen have sharply contrasting visions for Frances future – with Le Pen wanting the following:-
- Abandon the euro (and return to the franc), renegotiate France’s EU membership, then hold a referendum.
- “Automatic” expulsion of illegal immigrants and cut legal immigration to 10,000 per year.
- “Extremist” mosques closed and priority to French nationals in social housing.
- Lower retirement age to 60 and 35-hour week assured.
- Ban wearing of “ostentatious” religious symbols such as Muslim headscarves and veils in public.
- Impose a 35% tax on goods from firms that relocate out of France.
Whereas Macron’s, the reform-minded former Investment Banker, policies are as follows:-
- Unify France’s complex pension system, made up of 35 different public schemes.
- Cut 120,000 public-sector jobs and bring down the budget deficit.
- Slash corporation tax from 33% to 25% and let companies renegotiate 35-hour week.
- Send more teachers to deprived areas, ban mobile phone use in schools for under-15s.
- Strengthen EU ties, and tighten integration between Eurozone countries. €50bn (£43bn/ $53bn) public investment plan to cover job-training and shift to renewable energy.
Importantly for investors, ‘Mr Market’ took the news of Macron winning the first round well and during the course of Monday morning we saw European bond spreads tighten, the Euro strengthen markedly and global equity markets in positive territory with European markets leading the charge – the CAC 40, Euro Stoxx and DAX up 4.14%, 3.99% and 3.37%, respectively. This, along with the result of the Dutch elections in March, signals a potential stabilising of the political landscape in Europe. Furthermore, positive economic data releases – multi-year high PMI figures, inflation data, coupled with rising consumer confidence indicators bodes well for improvements in investor sentiment toward Europe, where, MitonOptimal, feel equity valuations, in relative terms, look more attractive than other developed markets, principally the US.
In our opinion, the market is now pricing in a ‘President Macron’ scenario with a relatively high degree of confidence. Nonetheless, a Le Pen win should not be entirely discounted, and the markets may continue to display higher bouts of volatility dependent upon the most recent polling results as we move towards the 7th May.
Notwithstanding the above, it is important to remember that whatever the outcome is on the 7th May; without parliamentary support, the options for whoever becomes the next elected French President are likely to be very limited.
Lastly, it is worth noting that the French election is liable to be the first of more than a few risks to test investors resolve and nerve heading into the relatively thin summer trading months – as such we will be keeping a close eye on all developments.
French Election: Macron vs. Le Pen
