Europe | Politics & Geopolitics
French Election – Is the Market Too Complacent of a Le Pen Presidency?
- By Henry Occleston
- 3 min read
French presidential elections are often full of surprises. Take Emmanuel Macron’s win in 2017, in which he had been polling in third place just five months before the first round. Or consider 2002, when Jean-Marine Le Pen jumped 4ppt at the last minute to take second place from Lionel Jospin.
So could Le Pen clinch the presidency? The media is beginning to take note. But if there really is a risk, the market looks complacent. The 10Y OAT/Bund spread (a measure of France-specific risk) has jumped to 55bps, its highest level since the 2020 crash. This might sound a lot, but in 2017, it blew out to 80bps, even while Le Pen trailed 20-30ppts in second-round polling.
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French presidential elections are often full of surprises. Take Emmanuel Macron’s win in 2017, in which he had been polling in third place just five months before the first round. Or consider 2002, when Jean-Marie Le Pen jumped 4ppt at the last minute to take second place from Lionel Jospin.
So could Marine Le Pen clinch the presidency this time? The media is beginning to take note. But if there really is a risk, the market looks complacent. The 10Y OAT/Bund spread (a measure of France-specific risk) has jumped to 55bps, its highest level since the 2020 crash. This might sound a lot, but in 2017, it blew out to 80bps, even while Le Pen trailed 20-30ppts in second-round polling.
This time, it is much closer. Le Pen trails by just 6ppt in second-round polls (Chart 1). Some may find comfort in this: since 2002, at least, the candidate in the lead in second-round polling has won every time. The counter is that in cases where the polling margin has been tighter, the final vote’s surprise has tended to favour the weaker candidate. Perhaps proximity to victory is enough incentive to spur supporters to get up and vote – unlike when you are trailing 25ppt, as Le Pen was in 2017.
Turnout is clearly a concern for Macron. The lack of campaigning and the lateness of his entrance into the race are no doubt factors. The margin and history may suggest a Macron victory, but the trajectory is certainly far from Macron-friendly.
In policy terms, Le Pen has moved away from Frexit and the more explicitly pro-Russian angle she once championed. She would be unlikely to hold a parliamentary majority come June, which might further temper the risk of more controversial policy action. Here, though, the details of policy are probably less important than the knee-jerk market fears of something drastic – as was the case in Italy in 2018 when Lega and M5S took control.
In 2017, it was the first-round vote that saw the retracement of OAT and CAC weakness (Charts 3 and 4). However, in our view, this looks less likely to repeat. 2017 saw Le Pen underperform polling in the first round at a time when support for her was already trending lower. This time she is in the ascendancy.
Tactical voting may play a part. It could support her, but there is also a tail-risk that it could put left-wing populist Jean-Luc Melanchon ahead of her. That would see a pricing out of Le Pen risk and significantly raise Macron’s chances of clinching the presidency (his lead there is 16ppt).
On this basis, simply a confirmation of Le Pen’s entry into the second round should be enough to see a knee-jerk weakness in French assets.
Henry Occleston is a Strategist, who focuses on European markets. Formerly, he worked in European credit and rates strategy at Mizuho Bank, and market strategy at Lloyds Bank.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)