Wednesday, August 10, 2022

It’s the French election this weekend — here’s what Wall Street expects to happen

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As French voters head to the polls Sunday, Wall Street is forecasting market upset if far-right candidate Marine Le Pen proves victorious.

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 Emmanuel Macron and rival Marine Le Pen.

Centrist Macron was seen taking the lead against his far-right opponent Friday as the pair face a rerun of their 2017 tete-a-tete.

In the final day of campaigning ahead of this weekend’s second-round vote, polls showed Macron with a 57.5% lead over Le Pen’s 42.5%.

But with the election coming at a time of renewed economic and political pressure, both domestically and within Europe at large, the outcome is far from certain, according to Wall Street.

Here’s a look at some major banks’ predictions:

Goldman Sachs

Goldman Sachs has put its weight behind opinion polls, citing 90% odds of a Macron win.

Should the incumbent succeed, investors can expect continuity within markets — even as Macron seeks to revive his reformist agenda. Such reforms are already largely embedded in current market forecasts, the bank said in a research note Thursday.

Should Le Pen win, however, markets could be in for a shock amid rising uncertainty around France’s domestic and EU policy.

Under France’s electoral system, presidential powers are largely dictated by parliament. The ultimate victor’s ability to govern will therefore be determined by legislative elections in June, and with little parliamentary popularity, Le Pen could face an institutional impasse.

That could significantly hurt investor confidence, said Goldman, adding that its markets team would look for a significant widening of sovereign spreads in the case of a Le Pen win.

Citigroup

Societe Generale

‘A lot at stake’

Economists elsewhere agreed that the ultimate outcome could mark a decisive turning point in French politics.

“A victory for either of them would take France on a completely different political, economic, European, and geopolitical trajectory,” ING Economics said Thursday.

While a Macron win would likely lead to further EU integration, a Le Pen win would be “unfavorable to the cohesion of Europe” at a time when it faces renewed pressure from adversaries in Russia.

“As France has always been one of the driving forces of European integration, the election of a euroskeptic French president would be a rude awakening for the European Union. Not to mention the fact that Le Pen has also been more skeptical of the European sanctions against Russia,” it said in a note.

Among Le Pen’s priorities are withdrawing France from the integrated command of NATO and seeking rapprochement with Moscow — a clear divergence from the EU’s wider stance.

“This leap into the unknown would probably lead to an adverse financial markets reaction and a very uncertain economic trajectory, weighing on the growth prospects for the coming years,” said ING.

Meantime, the pair’s conflicting views on domestic policy could have major implications for business and foreign investment, according to Berenberg Economics.

“A lot is at stake for France and the EU,” the economists noted Friday.



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