AMSTERDAM/LONDON (Reuters) –Marine Le PenThe far-right Rassemblement National (RN) party won the first round of France’s parliamentary elections on Sunday, exit polls show. However, the final outcome will depend on days of negotiations before the second round of the election next week.
The euro rose about 0.23% to trade around $1.0736 in early trading in the Asia-Pacific region.
European markets have been in turmoil since the appointment of President Emmanuel MacronThe shocking decision of June 9 to call early elections.
The prospect of a victory for either the far right or the left has unsettled investors, as both have promised big spending increases that could undermine France’s already fragile finances.
COMMENTS:
PETER GOVES, HEAD OF DEVELOPED MARKET DEBT RESEARCH, MFS INVESTMENT MANAGEMENT, LONDON:
“A hung parliament seems to remain the basis, loosely in line with market expectations. That said, the uncertainties are high and the NR looks set to become the largest party in the new Assembly.
‘We would caution against drawing too firm conclusions about the exact seat projection, as the high turnout has seen a rash of three-way matches. This makes things more complicated.
“How leaders respond and how alliances hold up will be crucial to the final outcome. A hung parliament is far from ideal politically, but it is not necessarily the most unfriendly market outcome.
“As such, the OAT Bunds may provide some comfort, but we struggle to see a material and sustainable pullback.”
FIONA CINCOTTA, SENIOR MARKET ANALYST, CITY INDEX, LONDON:
“I think it was a slight ‘well, there were no surprises’, so there was a sense of relief. Le Pen had a slightly smaller margin than some polls had indicated, which may have helped the euro a bit higher on the open market.”
“The focus is now on July 7 to see whether the second round supports an absolute majority or not. So it feels like we are a bit in the dark, but it is a relief that it has not become worse.”
DAVID MORRISON, SENIOR MARKET ANALYST, TRADE NATION, LONDON:
“One of the things you think about is that this is going to be a big protest against Macron and it will have a big positive effect on the RN.”
“But of course it will take some time before we find out what their vote percentage is, because the polls were really positive and were getting higher and higher. Macron was around 20% and that fueled concerns about France, Europe and the euro and a possible French version of Truss.”
“We won’t know until next Sunday. How will it end, if those three-way polls go to two, because there is a party that pulls out to oppose RN, what does that mean? That’s all still open at the moment. What we’re going to see is a bit of uncertainty about all the European indices and the euro going into next week.”
MICHAEL BROWN, SENIOR STRATEGIST, PEPPERSTONE, LONDON:
“Maybe the result won’t be as bad as the market had feared. The exit polls… showed Le Pen’s party winning between 240 and 310 seats, so the middle of that is just short of a majority.”
“We have also seen a lot of rhetoric from other parties who may want to withdraw candidates to prevent the Rassemblement National from winning a seat in the second round next Sunday.”
“The market may be able to take some comfort from that. But overall, the downside risks that were there at Friday’s close remain.”
‘The two most likely scenarios are either a majority for the RN, although the chances of that have diminished somewhat… or we end up with a hung parliament and a stalemate that will then require weeks, if not months, of negotiations to try to find a solution . form a government.”
“It is mainly a matter of waiting to see what the actual results of the first round of elections will be, because there are quite large differences in the seat forecasts derived from the voting ratios.”
“Volatility in the euro and in particular in French assets will remain relatively high in the coming days and next Sunday.”
PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:
“The overall results are not far off from most polls, but because of the electoral system we don’t really have a clear picture of what the seat distribution will look like.”
“It’s all at stake. We might know a little more when we get the first round counts to see how many delegates were chosen in the first round and what the fights are likely to be in the second round. So that might shed some more light on the situation, but there are clearly some question marks that will remain even after the result is known.”
“A lot would depend – because we don’t know yet whether they will get a majority – on how the social process goes between a potential National Rally government and Macron himself. The question is still current.”
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO, ING, FRANKFURT:
“With this result, the markets are looking at another week of very high uncertainty. Probably fear, as it is still possible for RN to gain an absolute majority next week.”
“This confirms what the markets see as the most disruptive scenario.”
“I expect the spread (between French and German) to widen again from tomorrow and we might even see a small drop in the CAC 40.”
“There is still a lot to happen in the coming days in terms of new polls that will show what this could mean for individual seats.”
“From the markets’ point of view, a left-wing bloc victory would have been an even worse scenario, even if it was highly unlikely from the start.”
(Compiled by Yoruk Bahceli and Amanda Cooper)
