The big news was in France, where the president Emmanuel Macron called parliamentary elections after his party was soundly defeated in the European Union electionswhile Germany’s ruling parties struggled due to the advances of the far-right Alternative for Germany.
France’s CAC 40 stock market index FR opened almost 2% lower, the worst of Europe’s major markets, with both big French banks, BNP Paribas (FR) and Societe Generale (FR), falling.
The Prime Minister of Belgium, Alexander De Croo announced his resignation after the poor results of his match, although at the hands of the right-wing Neo-Flemish Alliance and not the anti-immigration party Vlaams Belang. Although it should be noted that the actual results were not far from what the polls predicted, and the centrist parties still control Brussels. The Greens saw the biggest losses, falling to sixth place from fourth in representation.
European markets: what the market analyzes
“Nevertheless, although the elections did not bring a seismic shock to politics at the EU level, they are still likely to change the direction of policy in the next five years,” said Deutsche Bank economists led by Marion Muehlberger. They said far-right parties, which now hold about 22% of the seats, will only be able to exert influence when centrist parties are divided. “Fears of a populist shock appear to have been premature, but may serve as a barometer of where national policies are headed.”“
In France, two rounds of elections will be held on June 30 and July 7. Nico FitzRoy, senior Europe analyst at Signum Global, said Macron may have been inspired by last year’s Spanish election, in which Pedro Sánchez called an election immediately after his party suffered heavy losses in local elections.
But the gap between Macron’s Ensemble and Marine Le Pen-led Rassemblement National of 16 percentage points may be too big to close. “The ‘us or the far right’ narrative that Macron will try to employ works much better in the presidential election, where Macron has run directly against RN leader Marine Le Pen twice – the choice between multiple different parties in the parliamentary elections is less easily polarized between two outcomes,” he added.
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Reuters
Holger Schmieding, chief economist at Berenberg, says an RN victory could have implications for markets. “For a fiscally challenged France, new parliamentary elections add a level of uncertainty. This could become a concern for markets,” he said.
France’s credit rating was downgraded by S&P only last week over concerns about political fragmentation. France BX 10-Year Bond Yield rose 8 basis points.
The irony is that, after years of instabilitythe UK is now seen as more politically stable by the markets. Labour’s poll lead surpasses 20 percentage points ahead of the July 4 election, with JPMorgan analysts pointing out that the largest poll lead it has surpassed in 50 years has been nine points.
“Labor’s agenda is modestly pro-growth, but crucially with a likely cautious fiscal approach. Our economists believe that, given the lack of fiscal space, Labor will likely focus on supply-side reforms to help improve economic growth,” they said.
