Currently, there are four leading candidates in the upcoming French election; the first round of which would be held this Sunday 23rd April. Though, there are four candidates; En Marche leader Emmanuel macron, Front National leader Marine Le Pen, Republican candidate François Fillon, and the Leftist candidate Jean-Luc Mélenchon, and six possible outcomes for the second round that will be held on May 7th, three are most critical.
Why?
- While each candidate has their different sets of policies, pros, and cons, these four candidates can be defined in two groups; pro-European Union and anti-EU.
- Emmanuel Macron and François Fillon are pro-EU candidates.
- Marine Le Pen and Jean-Luc Mélenchon are anti-EU candidates.
- This stark difference between these two groups make this election something like a referendum on EU, hence there are three vital scenarios that would have profound impacts on the market.
Three Scenarios:
- Macron vs. Fillon second round: This outcome will be seen as extremely favorable by the market as the risk of an EU breakup will diminish. In this case, expect rallies in risky assets that include equities like the French benchmark index CAC40. Expect selloffs in the Havens like gold, Japanese yen, and the German bund. Euro is likely to push higher against the dollar and its other major trading counterparts. We have discussed euro levels in such a case in another published article.
- Pro-EU candidate vs. anti-EU candidate: The polls suggest that this is the most likely scenario with Macron and Le Pen leading the race. This is the most complicated of all three scenarios in terms of market impact. In this case, a lot of the impact would depend upon the margin. If the winning margin for Macron is higher, then, we could see similar risk rallies mentioned above, however, the risk of impact will be nothing like that in the above case.
- Le Pen vs. Mélenchon second round: For the financial markets, this is the most dreaded outcome as it puts the future of the European Union into question, as well as the future of the single currency. In this case, there could be big selloffs in the risky assets as well as in the euro. Currencies like the dollar and the pound will reign in such an outcome. French bonds could suffer big selloffs and yield would rise across the board. Expect the spread between the German fixed income and the equivalent French securities to widen.
The material has been provided by InstaForex Company – www.instaforex.com
April 21, 2017 at 02:29PM
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