Market calms down after French election: Euro rises

The right-wing populist RN in French parliamentary elections could be on the verge of securing an absolute majority. Financial markets reacted positively to this outcome, as a free-spending left-wing alliance did not gain as many votes as anticipated. Following the RN’s victory in the first round of elections, stock markets opened with gains and the euro strengthened against the dollar and the franc.

The RN’s success in the first round led to the euro rising above 1.0750 against the dollar and gaining ground against the franc. The European stock markets also opened positively, with the French CAC-40 index recording significant gains by the afternoon. French banks saw notable increases in their share prices, with Société Générale and Crédit Agricole both experiencing gains.

With the RN leading the first round, they have the potential to become the strongest force in parliament with 230 to 280 seats, although they may fall short of an absolute majority. President Macron’s camp and the left-wing alliance have pledged to prevent an absolute majority for the RN in the second round of voting by supporting stronger candidates in each other’s constituencies.

Despite efforts to prevent an RN majority, some are skeptical that this strategy will always be successful. Finance Minister Bruno Le Maire, for instance, has raised concerns about supporting candidates from the left-wing alliance due to their perceived threat to national security. If the RN were to secure an absolute majority, it could lead to significant changes in French political dynamics and foreign policy.

While financial markets were relieved that the left-wing alliance did not gain more votes, concerns remain about the potential economic impact of increased spending by the heavily indebted state. The outcome of the parliamentary elections will have significant implications for France’s public finances, investor confidence, and the stability of the euro.

Overall, analysts predict a parliament without a clear majority after the second round of voting, which could result in a standstill in the country. However, this scenario could also prevent extreme spending programs from being implemented, which would benefit French government bonds and reduce the risk of a credit rating downgrade. The uncertainty surrounding the election outcome has created volatility in financial markets, with investors closely monitoring the developments leading up to the final round of voting on July 7th.