Investors on edge as French vote tests markets

The stock markets are facing another test with the upcoming early elections in France, called by President Emmanuel Macron in response to the negative outcome of the European elections. The Rassemblement National, led by Marine Le Pen, obtained over 30% of the vote, prompting Macron to dissolve Parliament and call for early legislative elections. Polls show the RN on track to win a majority in the National Assembly, with high voter turnout expected.

The French political situation is delicate due to the country’s unstable public finances, with high levels of public debt and deficits. The decision to call early parliamentary elections has increased uncertainty about France’s fiscal consolidation path and economic reforms. Credit rating agencies warn of potential negative impacts on the country’s creditworthiness.

Investors are concerned about the economic programs of the two main coalitions vying for victory in the elections. The RN proposes tax cuts and other populist measures, while the left-wing coalition advocates for progressive fiscal policies and public sector expansion. The markets fear political instability and uncertainty, leading to significant sell-offs and volatility.

The outcome of the elections remains uncertain, with potential implications for financial markets and French assets. A clear victory by the RN could increase volatility and risk premiums, while a fractured Parliament may struggle to achieve economic reforms. The market impact of the French elections is expected to be neutral at best, depending on the election results and government formation.