French election

In the second round of France's parliamentary election, Marine Le Pen's RN unexpectedly fell from first to third place as a result of widespread tactical voting and targeted withdrawals by the other two groups. However, this has elevated the leftist New Popular Front to first place, with President Macron's centrists moving up to second – a recipe perhaps for ongoing uncertainty, as it seems likely to lead to horse trading between the left and centre and an (even) weaker government led by a minority or fragile coalition. Macron's gamble in calling the election seems to have failed. Le Pen herself still seems on course for a strong showing in 2027's presidential campaign.

The most likely implication for investors at this stage is the probability of (even) bigger government and more borrowing, but also some additional taxes on business and/or higher paid workers. This may keep OAT spreads wider than usual and French stocks under a bit of a cloud, but overall we think the outcome will be manageable, and leave our macro views largely unchanged. Importantly, France's commitment to the single currency will not be weakened by the result.

We should also reiterate the point we seem to have been making so often in the last few years (most recently again just on Friday, after the UK vote): there are many moving parts in the workings of financial markets, and the things which matter most to us as citizens do not always affect markets (and vice versa). The most important driver of eurozone and even French markets will likely be the next significant move in global growth, inflation and/or interest rate expectations.

Investors in French bonds and stocks, and in the euro, seem to be sharing this assessment, initially at least, and the markets are little moved this morning.

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