France: Election results spurred a dramatic response in the capital markets - BBH

Analysts at BBH explain that Macron and Le Pen will go to the second round of the French presidential election May 7 as both took just under a quarter of the vote in a field of eleven candidates but, polls suggest Macron will win the second round by over twenty percentage points.

Key Quotes

“The results of the election spurred a dramatic response in the capital markets.  Our thesis, that there is no populist-nationalist wave sweeping the world, is supported by the previous results in Austria, the Netherlands, and now France. The AfD in Germany wilting in the polls, and there too the center will hold.  The populist-nationalist wave seems a result of the Anglo-American two-party system in which the center-right party adopted part of the populist-nationalist platform.”

“While there was, of course, a certain amount of anxiety, especially given the electoral surprises over the past year, the investment community seemed not to be overly worried.  Large speculators in the currency futures have been amassing what Bloomberg calculates as a record large long euro position.  The premium that investors demand over Germany is elevated but has not accelerated as the election drew near.”

“Now that the election results are known, the market's attention will turn to the French parliamentary elections in June.  Neither of the top two presidential candidates, Macron and Le Pen, have representation in the current French parliament.  They will need other parties' support, and the configuration of parliament is just as crucial as the president, if not more so, for French policy going forward vis a vis the EU and EMU.”