French Elections: Macron Wins. It’s All Good?

SocGen’s view on Macron’s win last night, in a nutshell:

« What next? Newly elected President Macron is set to shortly appoint a PM and an interim government. Attention will now turn to the legislative election on 11 and 18 June.

Rates: EGB spreads are collapsing, more because of a desperate search for yield with few near-term risks, rather than any election relief per se. Bunds are exposed as tail risk falls.

FX: We see limited upside just now for EUR/USD, given the overshooting vs rates and the risk of profit taking. EUR/JPY should gain, HUF and PLN should gain more.

Credit: Markets may tighten still after the final vote of the French presidential election. Nonetheless, thoughts should quickly turn to whether CSPP can end soon.

Equity: Macron winning the election was expected and so mostly priced in. Eurozone markets should outperform: we favour our long-term calls on Italy (FTSE MIB) and Banks (SX7E).

Equity derivatives: Equity vol collapsed after the first round, and we see little scope for lower moves. The focus should shift quickly to the general elections and then to the German election.

Technicals: CAC40 on the verge of confirming a paradigm shift. »

Frexit? No Longer a Dumb Idea…

After the Brits, the French are making the headlines, not for the best. The market is slowly pricing the possibility that a far-right movement (Front National) might win at the next presidential election.

The risk here is that such a vote might provoke a sharp market correction that could have global ripple effects, since France is the 2nd largest economy of the eurozone and has been at the core of the European project since the 50s – something the Front National is openly questioning by promoting the « Frexit ».

According to SocGen’s strategy team, this is how the French market might react if French government yield were to rise slightly:

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