AMSTERDAM/LONDON (Reuters) – Marine Le Pen’s far-right National Rally (RN) party won the first round of France’s parliamentary elections on Sunday, exit polls showed, but the final result will depend on a runoff next week. bargaining beforehand.
In early trading in the Asia-Pacific region, the euro rose about 0.23% to around $1.0736.
European markets have been in turmoil since President Emmanuel Macron’s shock decision on June 9 to call snap elections.
The prospect of a win for either the far right or the left unnerves investors as both promise significant increases in spending that could damage France’s already fragile finances.
Comment:
Peter Goves, head of developed market debt sovereign research at MFS Investment Management in London:
“A hung parliament still appears to be the base case, broadly in line with market expectations. Nonetheless, uncertainty is high and the KMT looks set to be the largest party in the new parliament.
“We caution against making too firm inferences about exact seat projections, as high turnout has led to a three-way contest. This complicates matters.
“How leaders respond and how coalitions play out 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.
“So OAT-Bunds may get some relief, but it’s hard for us to see a substantial and sustainable rebound.”
FIONA CINCOTTA, Senior Market Analyst, London City Index:
“I think it’s a bit of ‘well, no surprises’, so there’s a sense of relief. Le Pen’s support is a bit smaller than some polls suggest, which may help the euro open slightly higher.
“The focus now is on whether the second round of voting on July 7 supports an absolute majority. So it does feel like we are in a bit of a bind, but thankfully it is not worse.
David Morrison, senior market analyst at Trade Nation in London:
“One thing you think about is that this will be a massive protest against Macron and a huge positive for the RN.”
“But, of course, it’s going to take a little longer to really figure out what their share of the vote is because the polls are really very positive and getting higher and Macron’s got about 20% and it’s causing raised concerns about France, Europe and the euro and the possible emergence of a French version of Tesla.
“We won’t know any more until next Sunday. What does it mean if a three-way poll goes against two because a party steps down against the RN? At the moment it’s all open. We’ll be watching all Europe next week Some uncertainty about the index and the euro.
MICHAEL BROWN, senior strategist at Pepperstone in London:
“Maybe the result is not as bad as the markets feared. Exit polls…Le Pen’s party won between 240 and 310 seats, so the midpoint is just shy of a majority.”
“We’ve also seen a lot of rhetoric from other parties wanting to withdraw candidates to avoid the National Rally winning seats in next Sunday’s runoff.”
“The market may take some comfort from this. But overall, the downside risks that existed at Friday’s close remain.”
“The two most likely scenarios are either a RN majority, although this is slightly less likely… or we end up with a hung parliament and gridlock, which then requires weeks or even months of new negotiations to try and resolve the issue. .
“It’s very much a wait-and-see situation as to how the first round of elections actually pan out, as there are some pretty big differences in seat projections extrapolated from vote shares.”
“Volatility in the euro, especially in French assets, will remain relatively elevated over the coming days and into next Sunday.”
PHILIP SHAW, chief economist at Investec in London:
“The overall results are not far off from most polls, but obviously because of the electoral system we don’t really know what the seat distribution is going to look like.”
“It’s all in the balance. We’ll probably know more when we get the first-round vote counts and see how many delegates were elected in the first round and what the fight might be in the second round. So. This may happen.
“Because we don’t know whether they will get a majority, a lot depends on how the coexistence process is between a potential national assembly government and Macron himself. The question remains.”
CARSTEN BRZESKI, global head of macro department at ING in Frankfurt:
“Given this outcome, markets are heading into another week of high uncertainty. Probably fear, as there is still a possibility of a Republican supermajority next week.”
“This confirms what the market sees as the most damaging scenario.”
“I expect (France-German bond) spreads to widen again starting tomorrow and we may even see a small decline in bond prices.”
“We’ll have a lot of new polling over the next few days showing what this might mean for individual seats.”
“From a market perspective, a left-wing bloc victory would be a worse scenario, although unlikely from the outset.”
