The euro reached a 10-day high following the first round of France’s unexpected snap election, with the far-right party leading the initial results. Despite the outcome, there is still uncertainty surrounding the final results, leading investors to prepare for potential market volatility. Marine Le Pen’s National Rally (RN) emerged as the front runner in the first round, although the party received a smaller share of the vote than some polls had predicted. The final outcome will depend on how parties form alliances for the second round in each of the country’s constituencies.
The shock election results have unsettled markets, especially as both the far-right and leftwing alliance have proposed significant increases in spending. This has raised concerns among investors due to France’s already high budget deficit, prompting the EU to recommend disciplinary actions. In response to the election, the premium demanded by bondholders to hold France’s debt over Germany’s reached its highest level since 2012, during the euro zone debt crisis. Additionally, shares in France’s major banks experienced significant losses, contributing to a decline in the Paris CAC 40 stock index.
As European markets prepare to open for trading on Monday, analysts are not anticipating a significant recovery in France’s bonds. The uncertain political landscape and potential for further volatility following the final election results have made investors cautious. The outcome of the run-off elections will largely depend on political deal-making, with candidates having until Tuesday to make decisions about continuing in the race. The possibility of alliances forming to block the RN from gaining power could influence market reactions positively.
Continued Uncertainty and Market Outlook
With a high voter turnout in the first round of the election, France is expected to see a record number of three-way run-offs, which could favor the far-right party. This has created additional uncertainty in the markets, as fears of the RN potentially gaining an absolute majority in the next round loom. Analysts predict that markets will remain volatile in the coming week as investors assess the political landscape and potential outcomes. While some are hopeful for a recovery in French bonds if credible alliances are formed, the overall sentiment remains cautious amid the ongoing uncertainty.
The shock snap election in France has had significant implications for the euro and financial markets. The initial results have created uncertainty and volatility, with investors closely monitoring the political developments leading up to the final round of the election. The outcome of the run-off races and the formation of alliances will be critical in determining market reactions and the future direction of France’s economy. As the situation continues to evolve, investors and analysts will be closely watching for any signs of stability or further unpredictability in the aftermath of the election.