With French voters heading to the polls on Sunday, Wall Street anticipates market turmoil if far-right candidate Marine Le Pen wins.
Timothy A. Clary | Afp | Getty Images
French voters head to the polls on Sunday to cast their ballots in the final round of a close presidential race between incumbent President Emmanuel Macron and his rival Marine Le Pen.
The centrist Macron was seen going up against his far-right opponent on Friday as the pair face the 2017 tete-a-tete rematch.
On the last day of the campaign before the second round vote this weekend, Opinion polls showed Macron leads by 57.5% over Le Pen with 42.5%.
But with the election approaching at a time of renewed economic and political pressure, both domestically and within Europe generally, the outcome is uncertain, according to Wall Street.
Here is a look at the forecasts of some of the major banks:
Goldman Sachs
Goldman Sachs has put its weight behind opinion polls, indicating 90% odds of Macron winning.
Should the incumbent succeed, investors can expect continuity within the markets — even as Macron seeks to revive his reform agenda. Such reforms are already largely implicit in current market expectations, the bank said in a research note on Thursday.
However, should Le Pen win, markets could be shocked amid growing uncertainty over France’s domestic and EU policy.
Under the French electoral system, presidential powers are dictated to a large extent by Parliament. Thus, the ultimate victor’s ability to govern will be determined by legislative elections in June, and with parliamentary unpopularity, Le Pen may face an institutional stalemate.
That could significantly hurt investor confidence, Goldman said, adding that his markets team would look for a significant expansion in sovereign spreads should Le Pen win.
City Group
While Citigroup’s primary case is also for Macron winning, its likelihood is less clear at just 65%.
Indeed, Wall Street said the chance of Le Pen winning was now “much more likely than it was in 2017,” amid the risks of a lower turnout and left-wing voters reluctance to support Macron.
This could present downside risks for stock markets, as French banks are likely to face the biggest blow.
“Le Pen’s surprise win, and the associated rise in bond margins, will likely weigh down the overall performance of the French stock market,” it said in a note on Tuesday.
euroin the meantime, will come under pressure from Le Pen’s win, and will likely drop to 1,065 for dollar, said the bank. A Macron victory, on the other hand, would provide a “moderate upside”.
Societe Generale
For Societe Generale, the end result is similarly unclear, and Le Pen’s victory “cannot be ruled out”.
“The race is very close and uncertainty is still high. We are still satisfied with this election and Le Pen’s victory will lead to sharp repricing,” the French bank said on Tuesday.
Once again, stock markets – especially eurozone banks and Italian stocks, both sensitive to EU integration – will be among the hardest hit by Le Pen’s victory.
The bank has also previously named about 37 French stocks with a market cap in excess of €1 billion, which could come under particular pressure from political risks surrounding social unrest, asset nationalization and EU policy. Those include Air France – KLMAnd Accor And Renault.
Meanwhile, in the debt markets, the spread between French and German 10-year bonds could jump to 90 basis points before finally settling in the 60-90 basis points range, if Le Pen wins. She said that if Macron is re-elected, the spreads around current levels are likely to remain at 45-50 basis points.
‘A lot is at stake’
Economists elsewhere agreed that the end result could represent a critical turning point in French politics.
“A victory for either would take France down a completely different political, economic, European and geopolitical path,” ING Economics said Thursday.
While a Macron victory would likely lead to further EU integration, a Le Pen victory would be “unfavorable to the cohesion of Europe” at a time when it faces renewed pressure from opponents in Russia.
“As France has always been one of the driving forces of European integration, the election of a Eurosceptic French president would be a rude awakening of the European Union. Not to mention the fact that Le Pen was also more skeptical of European sanctions against Russia.”
Among Le Pen’s priorities are withdrawing France from the integrated command of NATO and seeking rapprochement with Moscow – a clear departure from the broader EU position.
“This leap into the unknown could likely lead to a negative reaction in the financial markets and a highly uncertain economic path, affecting growth prospects for the coming years,” he said.
Meanwhile, the couple’s conflicting views on domestic politics could have major implications for business and foreign investment, according to Berenberg Economics.
Economists noted on Friday that “there is a lot at stake for France and the European Union”.
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