08 July 2024
If you are covering the market reaction to the French election results, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
"We anticipate that the French election results will elicit a muted market reaction given that investors had largely anticipated the outcome where the Rassemblement National would not secure a majority. However, there is a growing concern that the market’s current optimism may not fully account for the complexities introduced by the hung parliament. The political deadlock poses significant risks, particularly in light of France’s challenging fiscal position. Moreover, the policies of the far left will be viewed as very unfriendly by markets as well, so the hope is that some sort of moderate left coalition will emerge.
"Two weeks ago, the European Commission’s placed France under an Excessive Deficit Procedure and with the parliament in disarray, the likelihood of passing necessary budget cuts diminishes, complicating France’s efforts to adhere to the EU’s stringent budgetary regulations and to steer its public debt towards a more sustainable trajectory.
"The euro experienced a slight decline after exit polls, slipping around 0.2% and French bond futures also saw a downturn. The yield on France’s benchmark 10-year government bond has recently surged past 3.3%, a peak not seen in the last 12 months, following President Macron’s decision to call a snap election in June, reflecting the market’s apprehension about France’s fiscal stability and the broader economic implications.
"While the election outcome may be viewed as a good result in the sense that it avoided a more disruptive scenario, it falls short of being a good outcome due to the ensuing uncertainty and the formidable fiscal challenges that lie ahead for France. Investors will need to remain vigilant as France navigates through this period of political and economic uncertainty."
