France was on track for a hung parliament in Sunday’s election, with a left-wing alliance unexpectedly taking first place ahead of the far-right in a major upset that was set to prevent Marine Le Pen’s National Rally (RN) from leading government.
The result, if confirmed, will leave parliament divided into three major groups with very different platforms and no tradition of cooperation.
The RN was set to come third, according to pollsters’ predictions based on early results.
In early Asian trade, the euro slipped against the dollar and other major currencies. It last traded down about 0.2% at $1.0802.
Comments:
Lee Hardman, Senior Currency Analyst, Mufg, London
“It looks like a hung parliament and the RN didn’t do as well as expected while the left parties performed.”
“Over the last week or so, the currency markets have moved to price out a lot of the risk premium. So I think for now we’ll have to wait and see what happens in terms of trying to form a government and polite the negotiations that will try to be done in the coming weeks.”
“That will ultimately dictate what happens next for the euro for the euro. Based on the exit polls, we are not looking for a sharp move down for the euro.” He spoke after the initial dive.
Aneeka Gupta, Director of Macroeconomic Research, Wisdomtree, London
“We should get a short respite in the market. I think it should breathe in a new rally because we don’t see an extreme RN majority taking place, but it is likely to lead to a political stalemate until at least the fall of 2025.”
“It’s going to be very difficult to really move forward and pass any policy and bring about progressive reforms because each party’s vote is split and nobody has an absolute majority. I would say it’s a bit of a difficult situation.”
“I think the markets will be happy to avoid this extreme situation with the far right.”
Marchel Alexandrovich, Economist, Saltmarsh Economics, London
“The result is a surprise, with the Left Wing Alliance doing much better than expected.”
“However, fundamentally, it still suggests a period of difficult cohabitation for Macron and will be a challenge for him to push forward a strong legislative agenda.”
Cornelia Woll, President and Professor Hertie School, Berlin
“All in all, Emmanuel Macron’s risky gamble has not created a clear parliamentary majority. He is now in the same situation as before, in which his party has no support to advance ambitious legislative proposals. … This unstable situation will now be new normal until the summer of 2025, as the constitution prohibits the president from dissolving parliament again before a year has passed.”
Simon Harvey, Head Of Fx Analysis, Monex Europe, London
“It looks like the anti-far-right parties got really big support. But basically from a market point of view, there’s no difference in terms of the outcome. There will really be a vacuum in terms of France’s legislative capacity.”
“The bond market will be the real place to look. There may be a bit of a lower gap in French bond (prices).”
“We are in a policy-making period where we cannot do anything significant. Really and truly the reaction should be minimal. If we see one it will be to higher yields, lower euros and lower French stocks.”
“The real question is who will run and who will be the next prime minister.
“We’re not going to see much in terms of fiscal policy.”
Holger Schmieding, Chief Economist, Berenberg, London
“This (predicted result) is a serious relief for Europe, as the Eurosceptic far-right appears to have fared much less well than expected.”
“The perils of the tail have been averted. The left Alliance, although strong, is nowhere near a majority and (Marine) Le Pen is far behind, far from a majority.”
“However, it will be difficult for France to form a government and as the most likely outcome now is some sort of agreement between parts of the left and (President Emmanuel) Macron. This will probably mean that Macron has to change positions and the left will be able to have some influence on politics.
“This could mean some reversals of reforms rather than further reforms. The outcome I would say is less bad than it could have been. It could have been a lot worse.”
“For the markets, tail risks have basically been averted. And even though the left has unaffordable spending plans, the left will need allies and will only be able to implement some of its promises.”
Jan Von Gerich, Chief Market Analyst, Nordea, Helsinki
“While the initial results of the French election still raise many questions, financial markets are likely to greet the vote with some relief. The results appear to show that more moderate forces are still rallying in the second round against more extreme candidates, which it also has implications for the next presidential election.”
“Thus, the economic program of the left is in many ways much more problematic than that of the right, and while the left will not be able to govern alone, the outlook for French public finances is further worsened by these results. It is therefore reasonable to expect somewhat higher risk premiums to prevail in French assets beyond the initial market reaction.”
Ben Laidler, Head Of Equity Strategy, Bradesco Bbi, London
“Obviously it will be a bit of a relief that the far right has fallen much more than expected, but we still have a nasty surprise with the left wing doing much better than expected.”
“This will likely put an end to this tentative rally in the euro and French stocks that we’ve seen over the past couple of days. It represents more uncertainty from a perspective that markets may have turned a blind eye to.”
“One caveat, though, is that a big drop in this euro rally had nothing to do with what was happening in France. It had a lot to do with the dollar weakening on clearer signs of a slowdown in the US economy.”
“It will take some time to digest it. But this will be a hung parliament. There will be limited ability for anyone to be able to do too much.”
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