Paris, France – The first round of voting in France’s parliamentary election has sparked a rise in the French stock market, alleviating concerns about a potential victory for the rightwing National Rally party. As the results came in, the euro strengthened against the dollar, and the risk premium on French government bonds decreased. Investors reacted positively, interpreting the outcome as not as severe as initially feared.
Following a 1.5% surge in France’s Cac 40 benchmark stock market index, concerns remain as shares had previously dropped by 5% over the past month amid worries that the National Rally party led by Marine Le Pen could secure an overall majority in the upcoming second round of voting. With RN capturing 33% of the vote, the leftwing New Popular Front at 28%, and Emmanuel Macron’s centrist bloc at 20%, the future remains uncertain.
Recognizing the potential risks, investment manager Alex Everett noted, “We are not out of the woods yet.” There is still the possibility that the National Rally party could garner enough support in the second round to secure a decisive victory. Speculation abounds about potential alliances between left and center parties in an effort to prevent such an outcome.
The gap between the interest rates on French and German bonds widened before the election, reminiscent of the eurozone debt crisis in 2012. However, the spread narrowed slightly post-election, indicating some stabilization. Analyst Krishna Guha highlighted the ambiguity of the results, suggesting that a hung parliament and political paralysis in Paris may be preferable to extreme outcomes that could lead to further European economic crises.
Despite some relief in the markets, caution is advised as uncertainties persist heading into the second round of voting. As Macron announced the election, stock market fluctuations and bond spread adjustments signal lingering risks that could impact the financial landscape beyond the election cycle.