French markets wake up to risk of Le Pen presidency

  • French bank shares fall sharply
  • Vinci and Eiffage also fall as Le Pen gains ground
  • The first round of voting is on April 10.

LONDON/PARIS, April 5 (Reuters) – French stocks and bonds fell on Tuesday as markets began to recognize the risk that far-right candidate Marine Le Pen would win this month’s presidential election against incumbent Emmanuel Macron.

France’s benchmark CAC-40 stock index (.FCHI) was down 1.3% by 1215 GMT, below the pan-European STOXX 600 index (.STOXX), which was flat.

French government borrowing costs also rose, with 10-year debt yields rising 10 basis points.

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The spread between the 10-year French and German government bond yield, essentially the premium demanded by investors to hold French debt, rose to 54 basis points, levels not seen since the 2020 COVID-19 market crash. .

Le Pen, whose presidential campaign has gained momentum in recent days, captured 48.5% of voting intentions on Monday in an opinion poll on a possible second round against Macron, the highest score she has ever achieved.

Harris Interactive’s poll for business magazine Challenges said a Macron victory, which pollsters had considered almost a foregone conclusion, was now within the margin of error. read more

“Markets woke up to Le Pen,” said Jerome Legras, head of research at Axiom Alternative Investments.

French banks Societe Generale (SOGN.PA), BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) took the biggest hits with losses of 4-6%, much more than the 1.3% drop in a broader European banking index. (.SX7P).

One trader said the selloff was particularly notable in stocks seen as vulnerable to a Le Pen pick.

“Look at Vinci and Eiffage, their poor performance is a victim of Le Pen risk,” the trader said, pointing to the far-right leader’s plans to nationalize French road operators.

Shares of the two infrastructure groups fell around 5% (FOUG.PA) on the day.

The turmoil revives memories of the 2017 election when fears of a victory by the far left or far right sent French government borrowing costs soaring and pushed stocks lower.

Many investors see Le Pen’s platform, which aims to keep the legal retirement age at 62, as generous in terms of public spending. He is also seen as less business-friendly than Macron.

“Markets are likely to view Le Pen as less reliable on public spending and economic competitiveness, and as a lukewarm driver and/or unreliable partner for Germany and NATO at a crucial time for Europe and the West,” NatWest economist Giovanni Zanni told clients last year. week.

french spread


Zanni reckons a surprise victory by Le Pen could deliver a 50 basis point hit to French 10-year spreads over Germany, essentially the premium demanded by investors to hold French debt. That would bring the spread to a level similar to that of Spain, which has a lower credit rating.

In the run-up to the 2017 election, spreads soared to nearly 80 bps.

Francois Raynaud, a multi-asset fund manager at Edmond de Rothschild Asset Management, said selling French debt, known as OAT, against the German Bund via 10-year futures was a good hedge against an unexpected election result.

“By default, it makes sense for us to take protection by being underweight in terms of French weights against other indices, or through OAT futures,” Raynaud told Reuters on Monday, ahead of the latest sell-off.

Many investors are undeterred: Grace Peters, head of EMEA investment strategy at JP Morgan Private Bank, still prefers French stocks, especially luxury and energy stocks, which are less vulnerable to the domestic economy.

“A Le Pen victory is the wild card that could be disruptive. But the base case remains for Mr Macron,” Peters said.

Others are scanning the markets for risks.

The euro fell a quarter percent against the safe-haven Swiss franc on Tuesday to a one-month low, but Adam Cole, strategist at RBC Capital Markets, sees the euro’s risk premium likely to rise in coming weeks.

“Could financial markets also show signs of complacency ahead of the polls? We think it’s a significant risk,” he said.

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Reporting by Julien Ponthus and Samuel Indykin London, Sudip Kar-Gupta in Paris, and Danilo Masoni in Milan; Edited by Sujata Rao and Ed Osmond

Our standards: the Thomson Reuters Trust Principles.

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