The French stock market experienced a decline following the results of the second round of the legislative elections. The flagship CAC 40 index fell by 30.60 points to 7,645.02 points at the opening of the markets on Monday morning. This outcome was anticipated by financiers, despite the New Popular Front coming first, due to the absence of a real majority in the National Assembly.
France's bond market also saw changes, with the interest rate, or 'spread', climbing slightly to around 3.25%. Analysts warn that this gap could widen if the budgetary process falls behind schedule or if the chosen direction moves France away from a credible trajectory of cleaning up public accounts.
The political landscape in France remains uncertain, with significant differences between the three major political groups. According to Natixis, the rebound in risky assets, such as stocks, is expected to stall. The banking sector, in particular, saw declines with Société Générale falling by 1.46%, BNP Paribas by 1.34%, and Crédit Agricole by 0.51%. Deutsche Bank experts also highlight that political paralysis for the next 12 months seems likely, causing market caution towards the prospect of the left coming to power.
Other markets reacted modestly to the election results. The euro fell by 0.15% against the dollar and depreciated by 0.06% against the pound. Commerzbank analysts noted that the market as a whole believes the election outcome is largely irrelevant for the euro, partly due to crisis mechanisms established over the last decade.
The French election runoff results have placed Marine Le Pen and her right-wing populist party, Rassemblement National (RN), in a strong position, aiming for an absolute majority. However, tactical withdrawals by over 200 candidates have made an absolute majority less likely, though still possible. The RN needs 289 of 577 seats to achieve this majority.
If the Rassemblement National wins an absolute majority, President Macron will face significant challenges in governing, having to work with an opposition-dominated parliament. Le Pen has speculated that Macron might resign after the election, potentially leading to presidential elections before his term ends in 2027.
- The Paris stock exchange's decline was mirrored in other European markets, with London falling by 0.34% and Madrid by 0.26%. Frankfurt remained relatively stable with a minor decline of 0.01%.
- The official final result of the French election will be announced by Monday morning, with exit polls and projections providing early insights. Macron's alliance, which received just over 20% in the first round, is expected to face disappointing results.
- The tactical maneuvers in the runoff elections, aimed at weakening Marine Le Pen's chances, reflect the high stakes of this political battle. An absolute majority for RN would significantly alter the French political landscape, challenging Macron's presidency and potentially leading to early presidential elections.
