French Elections Take a Surprising Turn As Left Poised For Victory — What Does That Mean For The Market?

The left-wing alliance in France is poised to secure the majority of seats in a tense parliamentary showdown, undermining the far-right ambitions of Marine Le Pen‘s National Rally, based on preliminary results.

What Happened: Despite leading in the first round, the National Rally’s hope to dominate the French legislature for the first time fell short due to strategic alliances and tactical voting by opposition forces.

Early counts by the IFOP polling institute indicate that the left-wing bloc could secure between 180 and 215 seats out of 577, surpassing Macron's centrist party, which is projected to win 150-180 seats. The National Rally is expected to have between 120 and 150 seats, according to these initial projections, reports Politico.

This election’s outcome may introduce significant confusion and fragmentation in the parliament, splitting it among the leftist coalition, Macron’s centrists and Le Pen’s far-right faction.

In the days leading to the final vote, there was considerable political maneuvering, with many center and left-wing candidates withdrawing to consolidate the anti-Le Pen vote.

In a striking turn of events, far-left leader Jean-Luc Mélenchon addressed his supporters in Paris, celebrating what he described as an unexpected victory against the odds. He urged Macron to appoint a prime minister from the victorious left-wing alliance, now dubbed the New Popular Front.

Mélenchon’s remarks emphasized the coalition’s goals, including the repeal of Macron’s pension reforms and significant increases to the minimum wage.

Contrastingly, the atmosphere was somber at the National Rally’s gathering, where supporters expressed disbelief and disappointment as projections rolled in. Jordan Bardella, president of the National Rally, criticized the coalition between Macron and the left as an “unnatural alliance” aimed solely at thwarting his party’s significant progress.

Despite the setback, Bardella remained optimistic about future political prospects, highlighting the doubling of their parliamentary presence as a foundation for future successes.

The financial markets have been showing signs of strain, as the country faces snap elections. The yield on France's 10-year Obligations assimilables du Tresor (OAT) has widened nearly 20 basis points against Germany's 10-year Bunds, hitting an annual peak.

This shift underscores growing investor concerns as the first-round results showed the far-right National Rally party unlikely to secure a majority and, in turn, somewhat buoyed the euro, notes investment firm WisdomTree.

Following the election announcement, French stocks have experienced significant losses, with the CAC 40 Index dropping 5.3%, a steeper decline than the broader European EuroStoxx 600 Index, which fell by 2.1%. However, only 15% of the sales of companies within France’s benchmark CAC 40 Index are domestically oriented. This underscores the index’s global market nature from a revenue perspective, as many international companies based in France are less reliant on the domestic environment for their revenue, according to WisdomTree.

French banks are also grappling with higher risk premiums following proposals for new taxes on windfall profits and dividends. This, coupled with the potential for forced reductions in retail prices by infrastructure and utility companies, spells trouble for domestically focused firms in France.

In light of these market dynamics, WisdomTree suggests that investors consider strategies that hedge against such volatility. For instance, since its inception on July 2, 2012, the WisdomTree Europe Hedged Equity Index has aimed to mitigate currency risks for companies heavily reliant on non-European revenues, the firm points out.

This approach, according to WisdomTree, helps insulate investments from local market shocks, such as those induced by the French elections, by focusing on globally integrated European companies.

Why It Matters: The far right’s lead has diminished as Macron’s centrist Together alliance and the left-wing New Popular Front (NPF) have pulled candidates in efforts to unify the anti-National Rally vote.

The campaign witnessed an escalation in political violence, with over 50 physical assaults on candidates and campaigners recorded.

Luxury boutiques along the Champs Elysees boulevard, including the Louis Vuitton store, barricaded windows in anticipation of violent protests should the far right win.

A National Rally-led government would raise major questions about France’s role in Europe and on the global stage, and the direction of the EU given France’s influential role in the bloc.

Now Read: One To The Right, One To The Left: France’s National Rally Set For Record Win As The UK’s Labour Party Regains Support

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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