French Presidential Election
French Presidential Election: Macron Set For Run-off Battle With Le Pen
In the first round of the French Presidential election, exit polls released as polling stations closed reported that Macron had won with just below 24% of the vote with Le Pen just below 22%. Conservative candidate Fillon was trailing in third place and communist Melenchon in fourth with these two eliminated from the contest.
The two candidates with the most votes will move ahead to the second round run-off due to be held on May 7th. Markets were not open at the time, but indicative prices suggested that the Euro was trading at four-week highs above 1.0850.
The official Interior Ministry count showed Le Pen moving ahead early in the count, although this was due to the composition of districts where results were declared early with rural constituencies tending to vote more in favour of Le Pen. As the count continued, Macron pushed into the lead.
Overall, the results are very close to the final opinion polls. Nevertheless, in an historical context, the result is still a big shock as candidates from neither of the two main political parties made the second round for the first time in modern times.
The Euro would have been extremely vulnerable if both Le Pen and Melenchon had reached the second round as the future of the Euro area would have been under serious threat regardless of which of those two candidates won. A second-round contest between Macron and Fillon would have been the preferred option for the Euro and this would have guaranteed stability, at least in the short term.
There will certainly be relief that Macron has made the second round and that Le Pen polled no better than polls had suggested. Opinion polls give him a substantial lead over Le Pen for the second round with around 60% of votes compared with 40% for Le Pen.
EUR/USD opened just above 1.0900 and USD/JPY also moved above 110.00 as risk appetite improved sharply, although there was a correction as market liquidity improved. EUR/GBP rallied to test 0.8500.
Socialist Party candidate Hamon and Fillon both conceded within an hour of polls closing and backed Macron against Le Pen. All the other main candidates will endorse Macron, but markets will inevitably be concerned that Le Pen could close the gap during the campaign, especially as Macron does not have an established party base.
Security issues will be important during the campaign as any terrorism incidents could have a significant impact on voting intentions. In the short term, there will be reduced concerns surrounding the Euro’s future which will help support the currency.
There is likely to be some demand for French bonds and the potential for some decline in defensive demand for German bunds. Equities are also likely to push higher, although the impact given the improvement in risk appetite.
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