Macron received 27.6% of votes in the first round of the election, while his opponent received 23.4%, according to the official results from round one.
“The first round validated the disintegration of traditional parties and the rise of the protest vote. There will be a new campaign, with some attention to the economy and foreign policy. The result remains very uncertain, though Macron retains a small advantage,” writes Barclays economist Philippe Gudin in a note to investors.
The fight for the last round is going to be brutal.
From virtually assured at the start of the month, the “big” victory of Emmanuel Macron (La République en Marche or LREM) in the first round of the presidential election, Sunday April 10, has turned into a narrow lead.
As he led the European response to the war in Ukraine, the French President fell short of fully taking the measure of the implications that the war had on the economy, while his rival made her campaign about “protecting” income and purchasing power of French households but also attempted to hide her sympathies for the Russia President.
The turnout has been historically low, which makes Macron’s “assurance” of re-election all the more complicated.
Market shifts
As the week began, the financial gamblers who travel the world betting on political results and jockeying for position on the next big payoffs slowly began paying attention to this tectonic shift in the electorate and the chances for victory by either side.
The CAC40 index, a benchmark French stock market, dropped 6.6% since the beginning of the year, but this decline is in large part explained by a 10% decrease of shares valuation multiple (P/E 12 months forward).
The spread between the French sovereign bond and the Bund has widened recently, to 56 basis points last Friday from 20 basis points at the end of last year.
“The re-election of Macron would be a good element for the cohesion of the European Union. Domestically, continuity of labour market reforms, incrementation of retirement age and corporate tax cuts would all be positive for medium growth prospects,” BNP Paribas Exane economist Jean-Baptiste Pethe wrote in a note dated April 1.
“The sovereign risk would probably increase a lot if a populist were to be elected in the Eurozone,” adds the economist, who anticipates a 100 and 150 basis points bow in the sovereign spread in the case of Ms. Le Pen or Mr. Mélenchon’s victory, respectively.
“If Le Pen wins, we recommend, as a priority, to underweight French banks, to remain defensive and to be selective on some names of the consumer space,” notes Exane.
Goldman Sachs strategists also note the French election’s European implications.
In a note published on April 8, they wrote: “Equities and sovereign spreads have been resilient since the invasion of Ukraine by Russian forces part of this resilience lies likely in the swift and homogeneous response of European leaders with President Macron a central figure in proposals for further cohesion in the EU.”
“More likely (is a) foreshadowing of a move in the French presidency (or) rising probabilities of a Le Pen victory, one or both of which should trigger market stress, revamping some sovereign risk to front and center, and raising the equity risk premium,” they add.
Sean Darby, strategist at Jefferies, notes that several French-listed companies have compelling fundamentals and valuation multiples (in terms of return on capital and free cash-flow yield), especially in an environment of increasing interest rates.
He still maintains a “moderately positive”/“modestly bullish” stance on French equities as part of an overall allocation.
