Presidential: the markets are betting on Macron’s victory

Sent April 11, 2022, 12:28 pm

Investors are breathing a little better on Monday. The good score obtained by Emmanuel Macron in the first round of the presidential elections – higher than what the polls had promised him in recent days – has somewhat allayed their fears of seeing Marine Le Pen enter the Elysée this year. The political risk premium on French financial assets is clearly to the downside on the first day of the two-round interval.

Starting with the public debt. On Friday, the French 10-year rate reached 1.25%, the highest since 2015, amid fears of a win for Marine Le Pen. As a sign of market relief, a slight 1.5 basis point drop was offered at the opening on Monday, as the yield on sovereign bonds of other eurozone states rose.

Return of confidence

At the end of the morning, French rates finally followed the same trend as their counterparts, but to a lesser extent. An important indicator of investor confidence or distrust of French debt, the spread (the difference in rates) between France and Germany has fallen by 55 basis points – a record since the peak of the Covid crisis – to less than 50 basis points. A level still high compared to the average of the last few weeks.

The European currency, for its part, has regained strength against the dollar, after seven consecutive sessions in the red. Earnings 0.46%, at $ 1.09 for one euro.

Back in favor of the banks

The easing of concerns is also palpable on the Paris Stock Exchange. After stalling relative to its neighbors in recent days, the CAC 40 index recorded the best performance of the major European markets on Monday. It won 0.3% to 6,570 points at the end of the morning, while the German DAX was down 0.75% and the British FTSE 100 by 0.44%.

French banks, mistreated last week, have found the colors. Société Générale gained around 6%, the largest increase in Europe, an improvement partly linked to its decision to leave Russia, while BNP Paribas was up 2.7% and Crédit Agricole 1%. The motorway concessionaire and construction specialist Vinci also recovered some of the losses incurred in recent days, with an increase of almost 3%, as did its competitor Eiffage (+ 2%).

Deleterious context

This improvement remains limited due to a detrimental macroeconomic environment. “The risk of stagflation persists with the intensification of the war in eastern Ukraine and the sanctions of the European Union, which now affect energy imports,” recall the strategists of La Banque Postale AM. Whatever the outcome of the second round, there is no reason to expect a lasting price rebound.

On the bond front, the rapid tightening of monetary policies continues to inflame sovereign yields. The US Federal Reserve has confirmed that it intends to act quickly to raise policy rates and reduce its balance sheet. The European Central Bank is not expected to announce any new measures at its meeting on Thursday, but it is expected to confirm its willingness to end its asset purchase program in the third quarter, paving the way for a first monetary tightening this year.

Risk always present

Monday’s modest truce could also be short-lived. For investors, political risk remains very present. “By putting the votes head first and betting on a postponement of only a part of the votes of Pécresse and Mélenchon in favor of Macron, we can already predict that the vote in the second round will be much closer than in 2017, warns Jean-François Robin in Natixis . To the question Marine Le Pen can win, the answer is yes. “

And we are starting to see scenarios flourish that anticipate a victory for the far right and its consequences. If the hypothesis of a Frexit seems less plausible, the spread between Germany and France could then jump to 80 or even 100 basis points in the event of the election of the candidate of the National Rally, according to analysts’ estimates.

Volatility could recover in the next two weeks. Indeed, the risk premium on French assets is unlikely to completely disappear before the campaign ends and could rise sharply again if polls tighten. In this tense context, the debate to be held on April 20 between the two candidates could be decisive.

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