Global weekly: The French go to the polls

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The first round of the French presidential elections is on Sunday. We expect a marketfriendly win in the end.

The first round of the French presidential elections is in the weekend. Our base case is that Emmanuel Macron will win the presidency, but we have also looked at the consequences of a potential victory for François Fillon and the two populist eurosceptic candidates, Marine Le Pen and Jean-Luc Mélenchon.

A victory of Fillon would probably be the best-case scenario for financial markets, as his plans are the most ambitious with regard to stimulating economic growth and also the most beneficial for government finances. That said, given the recent polls of the first and second round of voting, a victory for Macron is more likely. We think that in regard to economic reforms and consolidating government finances, his plans are also favourable, albeit less ambitious, than Fillon’s. 

In the event of a Macron victory, we expect the 10-year French spread to fall back to around 50 basis points and the EUR/USD to rise to 1.10. We would see it as a significantly less market-friendly outcome if Le Pen or Mélenchon would win; the euro would drop sharply and we expect much higher government spreads of 225 basis points and 125 basis points respectively for Le Pen and Mélenchon.

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