What to Expect in Financial Markets After French Election

Sunday is the second and final round of the French Presidential Election. Here’s how things are shaping up going into the weekend.

The last debate went badly for Front National party candidate Marine Le Pen and she is now dropping in the polls.  This cake is baked.

We expect on Monday to see a relief rally in the Euro and CAC 40 French stock index that might benefit the S&P 500 and put a damper on treasuries and gold.  The French story isn’t completely over, however. France will hold legislative elections in June and those will determine if Emmanuel Macron’s new political organization, En Marche, can win an outright majority or has to form a coalition.  That outcome could go a long way towards determining his effectiveness as President and his ability to deliver difficult reforms like liberalizing the labor market. For markets, though, the legislative elections will be of less consequence as the Front National is expected to win only 15-25 seats out of 577 total.  En Marche is projected at 249-286 with 200-210 for the traditional right and 28-43 for the Socialist Party and 6-8 for the extreme left.

Read more about the market response to the French Election

The next really consequential elections will be Germany’s on September 24, 2017.  The question in Germany is whether Chancellor Merkel can win a fourth term, or whether the Social Democrats can make a comeback.  While the election will be important, it does not pose the binary choices of Brexit, U.S. elections, or the French Presidential election.

Erik Norland is a Senior Economist at CME Group.

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