Fra BNP Paribas:
French vote: Macron and Le Pen go to second round Market-friendly outcome
First-round winners qualifying for second-round run-off, according to current estimates:
Emmanuel Macron, new centrist En Marche! movement (“Forwards” or “On the move”) Marine Le Pen, far-right National Front Outcome in line with opinion polls
Based on the available polls, markets likely to take the view that Mr Macron will win, which would have a positive impact for two reasons: his liberal agenda and his pro-euro stance
No implications for our eurozone growth/inflation forecasts and our call on ECB policy; for details, see Eurozone: Change of gear, 17 February, and ECB Watch: More dovish but exit still in sight, 11 April Key element to watch: will the eliminated candidates endorse one of the remaining two?
So far, Mr Fillon and Mr Hamon have publicly expressed their support for Mr Macron in the second round Key date to watch: 3 May, when the two candidates are scheduled to meet in a televised debate The second round of the election will be held on 7 May and rules require campaigning to end at midnight on 5 May April 2017 2 French vote: Second-round opinion polls Macron appears to be the favourite to win
Fresh opinion polls will be available from 24 April Opinion polls conducted before the first round signalled that a run-off between these two candidates would see Mr Macron ultimately winning the second round by a margin of more than 20pp against Ms Le Pen
Ipsos poll (11,600 respondents; conducted 16–17 April): majority of the eliminated candidates’ supporters would be inclined to shift their support to Mr Macron rather than Ms Le Pen in the second round
Macron Le Pen Second-round voting intentions Source: OpinionWay, Ifop, Harris, Ipsos, Kantar, Elabe .
Average of last week’s polls Shift from first-round voting intensions Source: Ipsos poll (11,600 respondents; conducted 16–17 April) Note: The table shows the projected transfer of support from candidates eliminated in the first round. For example, the poll projects that 72% of those who voted for Benoît Hamon would vote for Mr Macron in the second round and 4% for Ms Le Pen, while 24% would abstain or spoil their ballots French vote:
Implications Next focus legislative elections
Significant differences between the two candidates’ platforms on the economy and Europe
Mr Macron wants to stimulate the economy largely through supply-side measures. Ms Le Pen would opt for demand-side policies and protectionist measures
Mr Macron is pro-European: favours further fiscal integration and creation of a new eurozone finance minister. Ms Le Pen wants to renegotiate EU ties, hold Brexit-style referendum on EU membership and reintroduce national currency. For details, please see France: The economics behind the politics, 17 March
Executive power divided between the president as the head of state and the prime minister as the head of the government
Second-round outcome will probably influence voter behaviour in the election for the lower house of parliament, 11–18 June Outcome of parliamentary election will determine the extent to which the president will be able to implement his programme. For details, see French politics: Election primer, 8 February
Candidates’ ability to implement the programme will depend on the majority in the legislative election
Mr Macron does not have an established political party; but, if he wins, we would expect him to have a government that shares similar ambitions and objective
En Marche plans to contest all 577 seats in the lower house and a Macron victory in the presidential election might be reflected in its success in parliamentary elections
In the event that they fell short of a majority, a like-minded coalition government would be likely Ms Le Pen’s National Front won only two seats in 2012 lower-house election; opinion polls back in June 2016 (the latest available) suggest the party’s number of MPs might now rise to about 70, that would still be well short of a majority
Ms Le Pen would face formidable challenges in holding an EU referendum: although such a referendum would not be impossible under the French institutional system, it would involve a complex process, especially without a parliamentary majority
Even were Ms Le Pen to win the presidency and the National Front do well in the legislative election, the outcome of such a referendum would be far from a foregone conclusion: according to the European Commission’s Eurobarometer survey, about 70% of French people favour membership of the euro and the EU April 2017 4 French vote: Some political reactions
Socialist presidential candidate, Benoît Hamon “I am calling to beat the National Front, to beat the far-right by voting for Emmanuel Macron even if the latter does not belong to the left and has no desire to represent it tomorrow. I am making a clear distinction between a political adversary and an enemy of the republic”
Republican presidential candidate, François Fillon “I take responsibility. There is no other choice but to vote against the National Front. I will vote in favor of Emmanuel Macron”
La France insoumise movement candidate, Jean-Luc Mélenchon “For now I do not endorse any candidate”
Former prime minister, member of Republicans, Alain Juppé “Without hesitation, I choose to give my support to Emmanuel Macron in his duel against the FN”
Current French prime minister, Bernard Cazeneuve “I solemnly call for a vote for Emmanuel Macron in the second round… to beat the National Front and block its baneful plan to bring France backwards and divide the French” Former prime minister, member of Socialist party, Manuel Valls “I will vote Macron as in first round”
Former prime minister, member of Republicans, Jean-Pierre Raffarin “I will vote for Mr Macron without hesitation”
Mayor of Paris, Anne Hidalgo “I call to block the extreme right and to vote in the second round for Emmanuel Macron” April 2017 5 Source: French media, Twitter, Bloomberg Most voices supporting Mr Macron
Overall strategy: This is a moderate risk-on for markets generally, as tail risks are less likely, especially after Mr Macron’s endorsements. Positive for government bond spreads (OATs, SPGs and BTPs) and the euro. Equities moderately positive and credit slightly tighter. FX: Stronger EUR. Second-round FX vol premium to collapse. Stronger commodity currencies; weaker JPY.
Rates: Expect EUR core yields to rise and peripheral spreads to tighten but stay close to the wides of their ECB QE trading range. Non-euro rates are expected to rise marginally.
Equities: Modest upside potential for European equity markets on relief, likely to see VSTOXX volatility decline sharply. Gold: As most of this risk is priced in, we see little movement (marginal downside).
Credit: Slight tightening of credit spreads expected as some short positions get unwound.
