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.
Since the presidency, European markets have been in turmoil Emmanuel MacronThe shocking decision of June 9 to call early elections.
The prospect of a victory for the far right or left has investors worried. Both parties have promised major spending increases, which could undermine France’s already fragile finances.
COMMENTS:
PETER GOVES, HEAD OF DEVELOPED MARKETS DEBT RESEARCH, MFS INVESTMENT MANAGEMENT, LONDON:
“A hung parliament appears to remain the base case, loosely in line with market expectations. That said, the uncertainties are high and it looks like the NR will be the largest party in the new Assembly.
‘We would caution against drawing too firm a conclusion about the exact seat projection, as the high turnout has seen a rash of three-way contests. This makes things more complicated.
“How leaders respond and how alliances play out will matter for the final outcome. A hung parliament is far from ideal politically, but it is not necessarily the most unfriendly market outcome.
“OAT-Bunds can therefore provide some comfort, but we find it difficult to see a material and sustainable revival.”
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 open a little higher.”
“Attention now turns to July 7 to see whether the second round will see an absolute majority support or not. So it feels like we’re in a bit of a limbo, but relief that it wasn’t 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 anything before next Sunday. How will things go if the three-way polls go to two because there is a party that is pulling back to push back against RN, what will that mean? That’s all open at the moment. What we will be looking at is a bit of uncertainty in all the European indices and the euro coming into effect next week.”
MICHAEL BROWN, SENIOR STRATEGIST, PEPPERSTONE, LONDON:
“Maybe the result is not 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 try to prevent the National Rally from gaining seats in next Sunday’s second round.”
“The market may take some comfort from that. But overall, the downside risks that existed 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 parliament that cannot vote and a stalemate that then leads to weeks, if not months, of negotiations to form a government.”
“It is very much a matter of waiting to see where the actual results of the elections will end up in the first round, because there is quite a large spread in terms of the seat projections that have been extrapolated from the vote shares.”
“Volatility in the euro and in French assets in particular will remain relatively high in the coming days and into 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 obviously don’t have a very clear idea of what the seat distribution will look like.”
“It all depends on the balance. We might know a little more when we have 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. That would can shed some more light on the situation. But it is clear that a number of questions remain even after the result is known.”
“A lot would depend – because we do not yet know whether they will get a majority – on how the process of cohabitation goes between a potential Rally of National Government and Macron himself. The question is still current.”
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO, ING, FRANKFURT:
“With this result, markets are looking forward to another week of really high uncertainty. Probably fear, as it is still possible that RN will gain an outright majority next week.”
“This confirms what markets see as the most disruptive scenario.”
“I expect a new widening of the spread between Franco-German bonds from tomorrow and we may even see a small decline 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 market’s point of view, a left-wing bloc victory would have been an even worse scenario, even if this was highly unlikely from the start.”
(Compiled by Yoruk Bahceli and Amanda Cooper)
