The far-right National Rally won the first round of the early parliamentary elections in France. The National Rally achieved nearly 34%, with a coalition of left-wing groups gaining 29% and President Emmanuel Macron's centrist camp gaining just under 22%. The final scale of the far-right's victory will only be possible to estimate after the second part of the vote on 7 July. Nevertheless, there is optimism on the financial markets, with the euro gaining approx. 0.5%.
Investors are relieved by the diminishing likelihood of Marine Le Pen's grouping securing an absolute majority in the French National Assembly. In the final straight before Sunday's election, the far right scored around 2% lower than suggested by polls. On the other hand, President Macron's power camp performed slightly better than forecast. The first simulations by research institutes say that the National Rally will win between 230 and 305 seats. The scale of uncertainty about the final outcome remains immense.
The high turn-out meant that in more than half of the districts, a minimum of three candidates would be competing for a seat in the second round. The threshold needed to guarantee an absolute majority in the National Assembly is 289 votes. This becomes less realistic for the leading party, and the other parties are likely to forge alliances and withdraw their candidates to block the way for the far right to build a majority cabinet with Jordan Bardella as Prime Minister. New Popular Front leader Jean-Luc Melenchon has already announced such a move. President Emmanuel Macron has called on all democratic factions to build a broad alliance ahead of the second round.
Financial markets were in turmoil when President Macron dissolved the National Assembly in the aftermath of the European Parliament vote three weeks ago and called the first early elections in this century. The vision of the National Rally taking full power, signifying the abandonment of the previous pro-market course and the drastic deterioration of the already strained public finances, caused French bonds to be sold off. Yields on 10-year Treasury securities relative to equivalent German debt reached levels not seen since the European Debt Crisis in 2012. France's main stock market index, CAC40, fell by 7% in three weeks. The euro came under pressure, with EUR/USD diving to 1.0670 in June.
On Monday morning, there was optimism in European markets stemming from a decrease in the chances of the darkest scenario in the eyes of investors coming true. However, the likely minority Bardell government will face a difficult cohabitation, and the political scene will not be stable. Nonetheless, today, the euro is appreciating by around 0.5% against the franc or the US dollar. French bonds are up, and the spread between French and German benchmarks collapsed to a two-week low. CAC40 skyrocketed at open by more than 2.5%. The easing of tension on European debt markets will play a part in a revival of the common currency. Fintech Conotoxia expects the EUR/USD exchange rate to rise to 1.09 in Q3, however, mainly due to the looming September Fed rate cut.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
The far-right National Rally won the first round of the early parliamentary elections in France. The National Rally achieved nearly 34%, with a coalition of left-wing groups gaining 29% and President Emmanuel Macron's centrist camp gaining just under 22%. The final scale of the far-right's victory will only be possible to estimate after the second part of the vote on 7 July. Nevertheless, there is optimism on the financial markets, with the euro gaining approx. 0.5%.
Investors are relieved by the diminishing likelihood of Marine Le Pen's grouping securing an absolute majority in the French National Assembly. In the final straight before Sunday's election, the far right scored around 2% lower than suggested by polls. On the other hand, President Macron's power camp performed slightly better than forecast. The first simulations by research institutes say that the National Rally will win between 230 and 305 seats. The scale of uncertainty about the final outcome remains immense.
The high turn-out meant that in more than half of the districts, a minimum of three candidates would be competing for a seat in the second round. The threshold needed to guarantee an absolute majority in the National Assembly is 289 votes. This becomes less realistic for the leading party, and the other parties are likely to forge alliances and withdraw their candidates to block the way for the far right to build a majority cabinet with Jordan Bardella as Prime Minister. New Popular Front leader Jean-Luc Melenchon has already announced such a move. President Emmanuel Macron has called on all democratic factions to build a broad alliance ahead of the second round.
Financial markets were in turmoil when President Macron dissolved the National Assembly in the aftermath of the European Parliament vote three weeks ago and called the first early elections in this century. The vision of the National Rally taking full power, signifying the abandonment of the previous pro-market course and the drastic deterioration of the already strained public finances, caused French bonds to be sold off. Yields on 10-year Treasury securities relative to equivalent German debt reached levels not seen since the European Debt Crisis in 2012. France's main stock market index, CAC40, fell by 7% in three weeks. The euro came under pressure, with EUR/USD diving to 1.0670 in June.
On Monday morning, there was optimism in European markets stemming from a decrease in the chances of the darkest scenario in the eyes of investors coming true. However, the likely minority Bardell government will face a difficult cohabitation, and the political scene will not be stable. Nonetheless, today, the euro is appreciating by around 0.5% against the franc or the US dollar. French bonds are up, and the spread between French and German benchmarks collapsed to a two-week low. CAC40 skyrocketed at open by more than 2.5%. The easing of tension on European debt markets will play a part in a revival of the common currency. Fintech Conotoxia expects the EUR/USD exchange rate to rise to 1.09 in Q3, however, mainly due to the looming September Fed rate cut.
See also:
Riksbank pauses, rate cut looms in August
EUR/CHF bounces off lows as the SNB pushes forward with rate cuts
Low inflation in the US turns back the dollar exchange rate
Turkish inflation tops out above 75 pct y/y
Attractive exchange rates of 27 currencies
Live rates.
Update: 30s