abrdn: Relief for markets now that France has 'least bad' election outcome

abrdn: Relief for markets now that France has 'least bad' election outcome

Politics France

Alex Everett, Investment Strategist at abrdn, comments on the election results in France:

'More France-led relief for markets this weekend, as Le Pen’s National Rally were convincingly denied their coveted absolute majority. A surprise strong result for the left coalition New Popular Front leaves a messy power struggle in France.

Historically high turnout in the second round suggests strong antipathy against the prospect of the right taking power. Apparent tactical voting vindicates the prior week’s frantic deals between left and centre parties.

With a hung parliament now looking extremely likely, markets can take some solace in this ‘least bad’ outcome. All else equal, no material jump higher in French borrowing is expected. Compromise politics means little change from here, watering down the excesses of any one party.

Once the dust has settled, the deadlock of a hung parliament will prove more damaging than first implied. France’s budget problems have not disappeared. The 20th September deadline for a credible deficit reduction plan looms ever closer. Macron’s attempt to force unity has instead fuelled yet more discord. We are sceptical that meaningful budgetary progress can be made, and remain underweight France versus European peers.'