As French voters head to the polls on Sunday, Wall Street predicts market upheaval if far-right candidate Marine Le Pen wins.
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French voters head to the polls on Sunday to vote in the final round of a tight presidential race between incumbent Emmanuel Macron and his rival Marine Le Pen.
Centrist Macron was seen taking the lead against his far-right opponent on Friday as the pair face a replay of their 2017 one-on-one.
On the final day of campaigning before this weekend’s second-round vote, polls showed Macron with a 57.5% lead to Le Pen’s 42.5%.
But with the election coming at a time of renewed economic and political pressure, both domestically and within Europe as a whole, the outcome is far from certain, according to Wall Street.
Here is an overview of the forecasts of some major banks:
Goldman Sachs has put its weight behind the opinion polls, citing a 90% chance of a Macron victory.
If the incumbent is successful, investors can expect continuity in the markets – even as Macron seeks to revive his reformist agenda. Such reforms are already largely factored into current market forecasts, the bank said in a research note on Thursday.
If Le Pen wins, however, markets could take a shock amid growing uncertainty around France‘s domestic and EU policies.
In the French electoral system, presidential powers are largely dictated by parliament. The ultimate winner’s ability to govern will therefore be determined by the June legislative elections, and with little parliamentary popularity, Le Pen could face an institutional stalemate.
This could significantly damage investor confidence, Goldman said, adding that its markets team would seek a significant widening in sovereign spreads if Le Pen wins.
While Citigroup’s baseline scenario is also for a Macron win, its probability is less clear at just 65%.
Indeed, the Wall Street bank said the chances of a Le Pen victory are now “considerably more likely than in 2017”, amid risks of low turnout and the reluctance of leftist voters to vote. support Macron.
This could present downside risks for equity markets, with French banks likely to be the most affected.
“A surprise victory for Le Pen, and an associated rise in bond spreads, would likely put downward pressure on the overall performance of the French stock market,” he said in a note on Tuesday.
The euro, meanwhile, would come under pressure from a Le Pen win, likely falling to 1.065 against the dollar, the bank said. A victory for Macron, on the other hand, would bring a “slight advantage”.
For Societe Generale, the final outcome is not clear either and a victory for Le Pen “cannot be excluded”.
“The race is very tight and uncertainty remains high. We still see complacency around this election, and a victory for Le Pen would lead to a sharp price revision,” the French bank said on Tuesday.
Again, stock markets – especially eurozone banks and Italian stocks, both of which are sensitive to European integration – would be among the hardest hit by a Le Pen victory.
The bank has also previously named some 37 French stocks with market capitalizations above €1 billion that could come under particular pressure due to political risks from social unrest, nationalization of assets and EU politics. . Among them, Air France-KLM, Accor and Renault.
Meanwhile, in debt markets, the spread between French and German 10-year bonds could jump to 90 basis points before eventually stabilizing in the 60-90 basis point range, should Le Pen come to win. If Macron were re-elected, spreads would likely remain around current levels at 45-50 basis points, he said.
“A lot at stake”
Economists elsewhere agreed that the end result could mark a watershed moment in French politics.
“A victory for either would set France on a completely different political, economic, European and geopolitical trajectory,” ING Economics said on Thursday.
While a Macron victory would likely lead to deeper integration into the EU, a victory for Le Pen would be “unfavorable to European cohesion” at a time when she faces renewed pressure from her opponents in Russia.
“As France has always been one of the driving forces behind European integration, the election of a Eurosceptic French President would be a rude awakening for the European Union. Not to mention that Le Pen has also been more skeptical of the European sanctions against Russia,” he said in a note.
Among Le Pen’s priorities are France’s withdrawal from NATO’s integrated command and the search for a rapprochement with Moscow – a clear divergence from the broader EU position.
“This leap into the unknown would likely lead to an adverse financial market reaction and a highly uncertain economic path, weighing on growth prospects for years to come,” ING said.
Meanwhile, the pair’s conflicting views on domestic politics could have major implications for business and foreign investment, according to Berenberg Economics.
“There is a lot at stake for France and the EU,” economists noted on Friday.