The euro fell by 0.2% to $1.0819, and French bond futures dipped 20 ticks, reflecting a yield of 3.13%, after French elections pointed to a hung parliament. Investors are relieved that Marine Le Pen’s far-right National Rally came third, contrary to poll predictions. However, concerns remain about the left’s potential to undo President Macron’s pro-market reforms and the risk of gridlock in managing France’s debt, which was 110.6% of GDP in 2023.
Simon Harvey of Monex Europe noted that the election results imply legislative stagnation in France. The 577-seat assembly is now divided among the left, centrists, and far-right, with no tradition of collaboration. Analysts predict 184-198 seats for the left, 160-169 for Macron’s alliance, and 135-143 for RN and allies. While markets rebounded slightly, concerns over new regulations and economic uncertainty persist.
Jan von Gerich of Nordea warned that the left’s economic proposals could further strain French public finances. The risk premium on French debt has risen to its highest since the 2012 eurozone crisis, indicating likely future volatility. Despite avoiding a far-right prime minister, markets face uncertainty regarding French assets.