Tag Archives: French Elections

2017 French elections – They think it’s all over…it isn’t

Emmanuel Macron, the centrist founder of the En Marche! movement beat National Front candidate Marine Le Pen by two votes to one in the second and final round of the French presidential elections on 7th May, in line with my core scenario.

But for President-elect Macron (and arguably the other main party leaders), the hard work starts now. Macron is expected to appoint next week his Prime Minister and there has been much speculation.

I would expect Macron to pick a head of government and approve cabinet ministers who will not polarise political opinion. The appointment of a “rainbow government” would likely help his party – recently renamed “La République En Marche” – secure the largest number of deputies at the forthcoming legislative elections on 11th and 18th June.

If his party succeeds as opinion polls suggest – no mean feat for a party which is only a year old and currently has no parliamentary deputies – this would in turn help reinforce Macron’s position and his choice of Prime Minister. 

However, polls suggest that La République En Marche may fail to secure a majority of the 577 seats in the National Assembly.

If the party falls well short of that number, it would likely seek a loose coalition with either the Republican Party or less likely with the beleaguered Socialist Party, in my view.

The National Front is likely to cement its position in French politics but it will need to reform itself and I would expect personnel changes and policy tweaks.

Marine Le Pen fell well short of securing the presidency and this should have come as no great surprise as nationalist parties in other EU member states have also come up short.

This is in line with my view that while nationalist/populist parties may have greater influence on the political landscape they will in most cases fail to exercise true power, let alone dismantle the eurozone and/or EU.

Finally, opinion polls which predicted with great accuracy the second and in particular first round of the presidential elections, are back in favour – at least in France.

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7 reasons why Macron will become President and market implications

The outcome of the first round of the presidential elections which see Emmanuel Macron and Marine Le Pen through to the second round – as per opinion polls –  and the positive market reaction are in line with my core scenario and expectations.

I am also sticking to my forecast that Macron, who is leading Le Pen by 22 percentage points in the polls, will win the 7th May run-off to become President, which would in turn likely lead to a further albeit modest rally in the euro.

French opinion polls, which have historically been accurate in “predicting” the outcome of the first and second round of presidential elections, have Macron comfortably winning the second round.

Macron has broad cross-party political support, Le Pen does not.

Presidential candidates with a small number of elected-official sponsors, such as Le Pen, have never become president.

Macron has a reasonably high “positive ranking” in popular polls, Le Pen does not.

Le Pen seemingly does not yet enjoy broad political appeal even if she will likely perform better than her father did in the 2002 presidential elections.

The National Front won 27.4% of the popular vote in the second round of the 2015 French regional elections but only 18.7% of the seats as a result of mainstream parties coalescing against the National Front.

Elections in the Netherlands and Austria suggest that voters are not yet ready to elect far-right parties to the highest echelons of power.
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The Ultimate Guide to the 2017 French Elections – Part IV

The outcome of the first round on 23rd April remains a close call and I am once again reminded of President de Gaulle who, in a nod to the French electorate’s heterogeneity, asked how it was possible to govern a country where 258 varieties of cheese exist[1].

This granular political landscape has come into focus in recent weeks. Polls show that in the first round National Front candidate Marine Le Pen and the centre-left independent Emmanuel Macron are still slightly ahead of far-left candidate Jean-Luc Mélenchon and Republican François Fillon but the margins are barely statistically insignificant.

Moreover, a large share of voters – up to 45% of the registered electorate – remain undecided on whether and how they will vote. These voters will likely swing the election.

Nevertheless, I am sticking to my core scenario that Macron will make it to the second round which he would win regardless of whom he faces given his strong cross-party political support and reasonably high popularity amongst voters.

While all the main candidate advocate some kind of reform of the EU and eurozone, Le Pen is campaigning on the premise that France needs to leave the eurozone and has promised to hold a referendum on France’s EU membership if elected.

Implied euro volatility has surged – a trend partly attributed to markets pricing in a higher probability of either Mélenchon or Le Pen being elected president. But actual euro volatility remains subdued and the fall in the euro and 2 and 5-year French government bond prices in recent weeks has been modest.

The consensus forecast, which I share, is that the Euro and French government bonds will rally if Macron or Fillon is elected president while the Euro would weaken sharply and French yields rise significantly should Le Pen or Mélenchon become president.

However, with an almost infinite number of scenarios to consider, any forecast of where European financial markets may end up and how they get there remains tentative at best.

There has been little focus on the elections for the French National Assembly, to be held over two rounds on 11th and 18th June and yet they will decide the composition of one of France’s law-making institutions and dictate from which party hails the Prime Minister.

Unless Fillon becomes President, it is likely that for the next five years the President and Prime Minister will not come from the same party or share the same political agenda – a period of “Cohabitation” which would clip the authority of Le Pen, Mélenchon and to a lesser extent Macron, and is usually associated with political instability. Read more

The Ultimate Guide to the 2017 French Elections – Part III

The first round of the French Presidential elections is due to be held in 17 days (on 23rd April), with the likely second round two weeks later on 7th May. The eleven presidential candidates yesterday took part in the final televised debate before the first round.

Weighing their performances remains fraught with difficulty and the key question remains whether the centre-left candidate Emmanuel Macron and National Front leader Marine Le Pen are still likely to make it to the second round.

This in-depth four-part Election Series examines all core elements of the upcoming presidential and legislative elections and takes a quantitative and qualitative approach.

In Part III, I tackle five questions, looking at past presidential elections where appropriate:

Q1: At this stage can we predict with any accuracy the eventual winner?

The media would suggest that we cannot and there is certainly scope for surprises. At the very least opinion polls could be under or over-estimating candidates’ chances. But if Macron and Le Pen make it to the second round, Macron looks set to be elected President based on opinion polls.

Q2: Are French presidential opinion polls reliable?

They accurately predicted the outcome of the 2012 and 2007 presidential elections and the eventual winner of the 2002 election. But opinion polls under-estimated support for Jean-Marie Le Pen in the first round in 2002.

Q3: What are French opinion polls currently predicting?

Macron and Le Pen are neck and neck in the first round on about 25% but these polls do not account for undecided voters and turnout.

Q4: Do French regional elections tell us anything about candidates’ chances?

The December 2015 regional elections suggest that while Marine Le Pen will do well in the first round, she will struggle in the second round in the face of concerted political opposition.

Q5: What are the odds of a left-wing candidate becoming President?

While Mélenchon is likely to come a credible fourth, based on current opinion polls, neither him nor Socialist Party candidate Hamon are likely to get even close to making it to the second round.
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The Ultimate Guide to the 2017 French Elections – Part II

The first round of the French Presidential elections is due to be held in 25 days (on 23rd April), with the likely second round two weeks later on 7th May. In many ways this is proving to be a unique election campaign but the centre-left Emmanuel Macron still comfortably leads National Front candidate Marine Le Pen in second round polls.

This in-depth four-part Election Series examines all core elements of the upcoming presidential and legislative elections and takes a quantitative and qualitative approach. In Part II, I tackle seven questions, looking at past presidential elections where appropriate:

Q1: Who are the presidential candidates?

Eleven candidates, spanning the breadth of the political spectrum, will officially contest the first round in a bid to capture the 46 million or so votes up for grabs. However, Emmanuel Macron and Marine Le Pen remain comfortably ahead in the polls on around 25%.

Q2: What are their relative strengths and weaknesses?

The recent televised debate between the top five candidates was high calibre, in my view, and the front-runners have in recent months shown clear strengths…but also weaknesses.

Q3: What are the odds of a candidate winning an absolute majority in the first round?

No candidate has ever obtained more than 50% of the popular vote in the first round. This time looks no different and a second round is a near certainty based on latest polls.

Q4: Does the number of sponsors have a bearing on first round results?

The relationship is tenuous but does suggest that Le Pen will fail to win the presidency.

Q5: Does the number of candidates have a bearing on first round results?

The large number of candidates points to the winner and runner-up of the first round winning only just over half of the votes, broadly in line with recent opinion polls.

Q6: Does the first round result have a bearing on the outcome of the second round?

Precedent suggests that a small margin of victory in the first round makes the second round outcome harder to predict. This year’s election could prove a break with the past.

Q7: Does it matter who came third or fourth in the first round?

It has on a few occasions but assuming that Fillon comes third and the left-wing candidates fourth and fifth, polls point to a convincing Macron win versus le Pen in the second round.

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Fed 25 and 500 Godfathers

Baring calamitous February inflation and retail sales data, I expect the Fed to hike rates 25bp on 15th March for the second time in three months, in line with market pricing and my mid-February forecast.

While underlying US inflation has only edged up slowly and payroll growth remains modest, other US data have been reasonably buoyant. The pool of available labour continues to grind lower and regional indicators, national confidence surveys and housing data pushed higher in January-February.

Moreover, normally dovish FOMC members have not made a strong case for a March pause and, along with Chairperson Yellen, have seemingly for now at least not made the Fed hiking cycle conditional on Trump delivering on his promise to loosen fiscal policy.

The big question is what next for the Fed. Its updated forecasts and dot-chart and Yellen’s question-and-answer session will undoubtedly provide some extra colour.

But it may be a little premature for the 17 FOMC members to materially change their forecast for the appropriate pace of hikes for 2017, which stands at 74bps – broadly in line with current market pricing.

The risk to my turn-of-the-year forecast that the Fed may only deliver two hikes this year is probably to the upside. But if the Fed is going to hike once a quarter, it will want to prepare markets conditioned by years of hikes far more modest than predicated by the Fed.

In France, potential presidential candidates have only a week left to meet the Constitutional requirements to become an official candidate in the first round.

My core scenario remains that Fillon will remain in the presidential race, that the first and second rounds due on 23rd April and 7th May will not be pushed back, that Le Pen and Macron will likely make it to the second round run-off and that Le Pen will lose the second round whether she faces Macron or Fillon.

But one should at least entertain the possibility, even if remote, that Jean-Luc Mélenchon, currently fifth in the polls on 12%, will not meet the requirements to be a candidate in the first round – namely the written support of 500 elected sponsors – which could in turn boost support for Socialist candidate Benoit Hamon.

Moreover, it is still conceivable, albeit unlikely, that Fillon will make it to the second round or conversely pull out of the race with Alain Juppé filling his place. Finally, the possibility of this year’s elections being postponed, while extremely slim, merits discussion.

 

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The Ultimate Guide to the 2017 French Elections – Part I

The first round of the French Presidential elections is due to be held in 47 days, with the likely second round two weeks later. There has already been much drama in a presidential campaign that has caught the world’s imagination.

The two-round election for the 577 deputies of the lower house of parliament on 11th and 18th June, which has so far received little attention, will complete the political picture in France.

There are currently eighteen presidential candidates spanning the breadth of the political spectrum, from the far-left to the far-right. Political jostling is in full swing with candidates forming alliances in a bid to capture the 46 million or so votes up for grabs in round one.

The National Front’s Marine Le Pen, currently ahead in the polls for the first round on around 27%, is looking to go one step further than her father Jean-Marie Le Pen and become the first ever French female president. She is currently under investigation for misappropriation of EU funds and publication of violent images.

The centre-left candidate Emmanuel Macron, aged 39, is second in the polls on around 25%. He is vying to become the first centrist president since Valéry Giscard d’Estaing in 1974, the first independent candidate to become France’s head of state and the youngest ever President under the Fifth Republic.

Republican candidate François Fillon, who comfortably won the party primaries, is third in the polls on around 20% despite the probability that he will face formal charges on 15th March of misappropriation of parliamentary funds.

President de Gaulle, in a nod to the heterogeneity of the French electorate, famously asked how it was possible to govern a country where 258 varieties of cheese exist[1]. This granular political landscape makes it that much harder to predict with any certainty the successor to incumbent President François Hollande who has opted not to run for a second term.

This in-depth four-part Election Series will examine all core elements of the upcoming presidential and legislative elections and take both a quantitative and qualitative approach.

The material, organised in easy-to-access questions and answers, will ultimately try to answer the key question of who will be President and Prime Minister and how this will impact France, Europe and financial markets. The British decision to leave the EU and US presidential elections have fuelled the notion that anything is possible.

In Part I, I examine the importance of French presidential and legislative elections, their mechanics and timelines and the implications of a potentially high voter turnout. Read more

French elections in focus but US data likely to draw attention

February is ending with a whimper rather than a bang. Market pricing for a Fed hike in March continues to flirt with 5-6bp while in the UK the market seems to be waiting for the government to trigger Article 50. Meanwhile the ECB is likely to stay in a holding pattern until it knows what kind of French president it will be facing come 7th May.

US ISM, income, spending, and inflation data out on 1 March could however potentially move the needle on financial markets.

I continue to expect a 25bp Fed hike in March but acknowledge that this is a low conviction forecast at this stage.

In France, the latest headline-grabber is that veteran centrist politician François Bayrou announced on the evening of 22nd February that he had opted not to run for the presidency. He will instead lend his support to Emmanuel Macron, the independent centrist candidate of the En Marche! Movement.

This should have come as little surprise but markets still reacted positively, with in particular French bond yields sliding lower.

The justification for this admittedly modest market reaction is that Bayrou’s electorate will now transfer its votes to Macron, in turn increasing the probability of Macron coming ahead of François Fillon and making it to a second round run-off against Marine Le Pen.

There is some logic to this argument, as recent polls suggest. Moreover, the relatively inexperienced Macron may benefit from Bayrou’s familiarity with the ins-and-outs of campaigning gained over three previous presidential election bids.

But there is also some evidence that Fillon, the Republican candidate, may benefit from Bayrou’s decision and it is simply too early to predict with confidence whether Macron or Fillon will make it to the second round.

The bottom line is that Bayrou’s decision has increased the odds of Macron and to a lesser extent Fillon making it to the second round and further decreased the odds of Le Pen winning in the second round against either Macron or Fillon.

Meanwhile, time is running out for Socialist Party candidate Benoit Hamon to secure a second round place.
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EM currencies, Fed, French elections and UK reflation “lite”

Rising US yields, stronger dollar, FX outflows from emerging markets into US equities, President Trump’s still uncertain policies regarding global trade and country-specific concerns continue to weigh on EM currencies.

But the pace of depreciation in EM currencies has abated, with a number of central banks hiking their policy rate and likely intervening in the FX market. China is manipulating its currency but perhaps not the way that US President Trump thinks.

With the market having almost fully priced in a December Fed hike, it will focus on FOMC members’ likely further downward revision to their forecasts for the appropriate policy rate.

Commentators are making a number of assumptions about next year’s French presidential elections and the potential impact on the euro. Some seem reasonable, others less so.

The first assumption is that Fillon will beat Juppé in the second round run-off of the Republican primaries on 27th November. This is indeed the most likely outcome.

The second assumption, which I agree with, is that no presidential candidate will clear the 50% threshold required in the first round of the elections on 23 April to become President.

The third assumption, now seemingly hard-baked, is that no Socialist candidate stands even a remote chance of making it to the second round of the presidential elections on 7th May 2017. I would argue that it is too early to write off that possibility.

The fourth assumption, which I believe is still far-fetched, is that Front National leader Marine Le Pen could win the second round to become President, which in turn would precipitate France’s exit from the EU and pressure the euro.

UK markets’ mixed reaction to Wednesday’s Autumn budget was in line with my expectations of higher yields and stronger Sterling.

Chancellor Hammond’s modestly stimulative package reflects the realities and uncertainties which the UK economy has faced since the June referendum. This is still the over-riding theme markets will have to deal with in the near and potentially long-term.

Hammond had one hand behind his back and a moving target to hit. He has backloaded spending to 2018-19 and beyond with a focus on infrastructural projects to boost languishing UK productivity. Read more