La Française: French presidential elections commentary

La Française: French presidential elections commentary

April 6, 2022

Politics France
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By François Rimeu, Senior Strategist, La Française AM

At the time of writing (04/04/2022), the gap is closing between Emmanuel Macron and Marine Le Pen with the latest polls showing a small lead for the current president.

Even if a Le Pen victory does not seem to be the most likely outcome, one cannot rule out a surprise later this month, especially with left-wing voters unlikely to support Macron during the second round as much as they did in 2017.

Looking at implied volatility on the Euro / USD (or spreads on OAT vs similar countries), markets seem to see French elections as a non event, which is completely different than in 2017.

We have adjusted our portfolios in view of the election by reducing our exposure to French Government bonds, increasing our allocation to Germany and selling Euro vs USD. Excluding the probable knee jerk reaction of financial markets, the longer-term implications are harder to evaluate.

Marine Le Pen does not want to get out of the Eurozone anymore, so the risk of a eurozone break up appears to be low, but it will make economic development inside the eurozone more uncertain. Immigration policies will need to be discussed again, fiscal rules will be challenged, diplomatic relationships will change and so on. At first sight, it does not appear to be positive for European potential growth going forward.

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