2017 French elections – They think it’s all over…it isn’t

Emmanuel Macron, the centrist founder of the En Marche! movement beat National Front candidate Marine Le Pen by two votes to one in the second and final round of the French presidential elections on 7th May, in line with my core scenario.

But for President-elect Macron (and arguably the other main party leaders), the hard work starts now. Macron is expected to appoint next week his Prime Minister and there has been much speculation.

I would expect Macron to pick a head of government and approve cabinet ministers who will not polarise political opinion. The appointment of a “rainbow government” would likely help his party – recently renamed “La République En Marche” – secure the largest number of deputies at the forthcoming legislative elections on 11th and 18th June.

If his party succeeds as opinion polls suggest – no mean feat for a party which is only a year old and currently has no parliamentary deputies – this would in turn help reinforce Macron’s position and his choice of Prime Minister.

However, polls suggest that La République En Marche may fail to secure a majority of the 577 seats in the National Assembly.

If the party falls well short of that number, it would likely seek a loose coalition with either the Republican Party or less likely with the beleaguered Socialist Party, in my view.

The National Front is likely to cement its position in French politics but it will need to reform itself and I would expect personnel changes and policy tweaks.

Marine Le Pen fell well short of securing the presidency and this should have come as no great surprise as nationalist parties in other EU member states have also come up short.

This is in line with my view that while nationalist/populist parties may have greater influence on the political landscape they will in most cases fail to exercise true power, let alone dismantle the eurozone and/or EU.

Finally, opinion polls which predicted with great accuracy the second and in particular first round of the presidential elections, are back in favour – at least in France.

Read 2017 French elections – They think it’s all over…it isn’t in full on my website.

US, UK and global GDP growth update – Put the champagne on ice

US GDP data weakest of a disappointing lot….

Data released today show that Q1 2017 real GDP growth:

  • In the US slowed to 0.7 quarter-on-quarter (qoq) annualised, from 2.1% qoq in Q4 2016 – the weakest growth rate in three years (see Figure 1);
  • In the UK halved to 0.3% qoq – the weakest growth rate in a year;
  • In France slowed to 0.3% qoq from 0.5% qoq in Q4 2016; and
  • In Spain rose to 0.8% qoq from 0.7% qoq in Q4 2016.
Read the full article on my website.

7 reasons why Macron will become President and market implications

The outcome of the first round of the presidential elections which see Emmanuel Macron and Marine Le Pen through to the second round – as per opinion polls –  and the positive market reaction are in line with my core scenario and expectations.

I am also sticking to my forecast that Macron, who is leading Le Pen by 22 percentage points in the polls, will win the 7thMay run-off to become President, which would in turn likely lead to a further albeit modest rally in the euro.

French opinion polls, which have historically been accurate in “predicting” the outcome of the first and second round of presidential elections, have Macron comfortably winning the second round.

Macron has broad cross-party political support, Le Pen does not.

Presidential candidates with a small number of elected-official sponsors, such as Le Pen, have never become president.

Macron has a reasonably high “positive ranking” in popular polls, Le Pen does not.

Le Pen seemingly does not yet enjoy broad political appeal even if she will likely perform better than her father did in the 2002 presidential elections.

The National Front won 27.4% of the popular vote in the second round of the 2015 French regional elections but only 18.7% of the seats as a result of mainstream parties coalescing against the National Front.

Elections in the Netherlands and Austria suggest that voters are not yet ready to elect far-right parties to the highest echelons of power.

Read the full article on my website.

French politics, UK macro data and possible GBP/EUR downside

The GBP/EUR cross is at year-highs but continues to struggle to breach the 1.20 mark, as it did on a number of occasions in the second half of 2016. Sterling has been buoyed by British Prime Minister Theresa May’s call for early general elections on 8th June while the euro remains in reasonably narrow trading ranges as we head into Sunday’s French presidential election first round.

With four presidential candidates polling between 18.5% and 23.5%, it is still a close call (see Figure 1). But I am sticking to my core scenario that independent centre-left candidate Emmanuel Macron will fill one of the top two spots to make it to the 7th May run-off, which I my view would be welcomed by French financial markets and the euro even if markets remain jittery over the next fortnight (see The Ultimate Guide to the 2017 French Elections, Part IV, 13 April 2017).

At the same time, the ever-changing political scene in the UK can do little near-term to avert the headwinds to GDP growth stemming from falling real wages and retail sales. With this in mind, I see the risk to GBP/EUR biased to the downside in coming weeks, particularly if both Macron and Republican candidate François Fillon earn their place in the second round.

Read the full article here.

The Ultimate Guide to the 2017 French Elections – Part IV

The outcome of the first round on 23rd April remains a close call and I am once again reminded of President de Gaulle who, in a nod to the French electorate’s heterogeneity, asked how it was possible to govern a country where 258 varieties of cheese exist.

This granular political landscape has come into focus in recent weeks. Polls show that in the first round National Front candidate Marine Le Pen and the centre-left independent Emmanuel Macron are still slightly ahead of far-left candidate Jean-Luc Mélenchon and Republican François Fillon but the margins are barely statistically insignificant.

Moreover, a large share of voters – up to 45% of the registered electorate – remain undecided on whether and how they will vote. These voters will likely swing the election.

Nevertheless, I am sticking to my core scenario that Macron will make it to the second round which he would win regardless of whom he faces given his strong cross-party political support and reasonably high popularity amongst voters.

While all the main candidate advocate some kind of reform of the EU and eurozone, Le Pen is campaigning on the premise that France needs to leave the eurozone and has promised to hold a referendum on France’s EU membership if elected.

Implied euro volatility has surged – a trend partly attributed to markets pricing in a higher probability of either Mélenchon or Le Pen being elected president. But actual euro volatility remains subdued and the fall in the euro and 2 and 5-year French government bond prices in recent weeks has been modest.

The consensus forecast, which I share, is that the Euro and French government bonds will rally if Macron or Fillon is elected president while the Euro would weaken sharply and French yields rise significantly should Le Pen or Mélenchon become president.

However, with an almost infinite number of scenarios to consider, any forecast of where European financial markets may end up and how they get there remains tentative at best.

There has been little focus on the elections for the French National Assembly, to be held over two rounds on 11th and 18thJune and yet they will decide the composition of one of France’s law-making institutions and dictate from which party hails the Prime Minister.

Unless Fillon becomes President, it is likely that for the next five years the President and Prime Minister will not come from the same party or share the same political agenda – a period of “Cohabitation” which would clip the authority of Le Pen, Mélenchon and to a lesser extent Macron, and is usually associated with political instability.

Read the full article here.

The Ultimate Guide to the 2017 French Elections – Part III

The first round of the French Presidential elections is due to be held in 17 days (on 23rd April), with the likely second round two weeks later on 7th May. The eleven presidential candidates yesterday took part in the final televised debate before the first round.

Weighing their performances remains fraught with difficulty and the key question remains whether the centre-left candidate Emmanuel Macron and National Front leader Marine Le Pen are still likely to make it to the second round.

This in-depth four-part Election Series examines all core elements of the upcoming presidential and legislative elections and takes a quantitative and qualitative approach.

In Part III, I tackle five questions, looking at past presidential elections where appropriate:

Q1: At this stage can we predict with any accuracy the eventual winner?

The media would suggest that we cannot and there is certainly scope for surprises. At the very least opinion polls could be under or over-estimating candidates’ chances. But if Macron and Le Pen make it to the second round, Macron looks set to be elected President based on opinion polls.

Q2: Are French presidential opinion polls reliable?

They accurately predicted the outcome of the 2012 and 2007 presidential elections and the eventual winner of the 2002 election. But opinion polls under-estimated support for Jean-Marie Le Pen in the first round in 2002.

Q3: What are French opinion polls currently predicting?

Macron and Le Pen are neck and neck in the first round on about 25% but these polls do not account for undecided voters and turnout.

Q4: Do French regional elections tell us anything about candidates’ chances?

The December 2015 regional elections suggest that while Marine Le Pen will do well in the first round, she will struggle in the second round in the face of concerted political opposition.

Q5: What are the odds of a left-wing candidate becoming President?

While Mélenchon is likely to come a credible fourth, based on current opinion polls, neither him nor Socialist Party candidate Hamon are likely to get even close to making it to the second round.

Read the full article here.

The Ultimate Guide to the 2017 French Elections – Part II

The first round of the French Presidential elections is due to be held in 25 days (on 23rd April), with the likely second round two weeks later on 7th May. In many ways this is proving to be a unique election campaign but the centre-left Emmanuel Macron still comfortably leads National Front candidate Marine Le Pen in second round polls.

This in-depth four-part Election Series examines all core elements of the upcoming presidential and legislative elections and takes a quantitative and qualitative approach. In Part II, I tackle seven questions, looking at past presidential elections where appropriate:

Q1: Who are the presidential candidates?

Eleven candidates, spanning the breadth of the political spectrum, will officially contest the first round in a bid to capture the 46 million or so votes up for grabs. However, Emmanuel Macron and Marine Le Pen remain comfortably ahead in the polls on around 25%.

Q2: What are their relative strengths and weaknesses?

The recent televised debate between the top five candidates was high calibre, in my view, and the front-runners have in recent months shown clear strengths…but also weaknesses.

Q3: What are the odds of a candidate winning an absolute majority in the first round?

No candidate has ever obtained more than 50% of the popular vote in the first round. This time looks no different and a second round is a near certainty based on latest polls.

Q4: Does the number of sponsors have a bearing on first round results?

The relationship is tenuous but does suggest that Le Pen will fail to win the presidency.

Q5: Does the number of candidates have a bearing on first round results?

The large number of candidates points to the winner and runner-up of the first round winning only just over half of the votes, broadly in line with recent opinion polls.

Q6: Does the first round result have a bearing on the outcome of the second round?

Precedent suggests that a small margin of victory in the first round makes the second round outcome harder to predict. This year’s election could prove a break with the past.

Q7: Does it matter who came third or fourth in the first round?

It has on a few occasions but assuming that Fillon comes third and the left-wing candidates fourth and fifth, polls point to a convincing Macron win versus le Pen in the second round.

Read The Ultimate Guide to the 2017 French Elections – Part II in full on my website.