Marine Le Pen’s Rassemblement National emerged victorious in the first round of French parliamentary elections, securing around 33% of the vote. The left front followed with 28%, and Macron’s alliance with 21%. The RN and its allies triumphed in 485 out of 577 districts, setting the stage for the second round. In over half of the districts, a 3-way race is possible, prompting calls for tactical redraws to prevent the far right from gaining power. The deadline for eligible candidates is approaching, and as it nears, the polls will provide more precise insights.
A hung parliament with a substantial, yet not absolute, majority for RN seems probable. However, the prospect of power-sharing cohabitation remains a possibility. The financial markets responded with a “muted” relief, witnessing a rise in EUR/USD from 1.07 to 1.0760. French assets outperformed, with the 10-yr OAT/swap spread currently at 46 bps. European stock markets saw gains of 0.75%-1.25%, with the French CAC40 climbing by 1.85%. German Bund yields also rose, while US yields extended their increase following the presidential election debate.
In economic news, German inflation data showed a 0.2% monthly increase, in line with expectations. The Y/Y figure eased from 2.8% to 2.5%, primarily due to lower contributions from road-fuel prices, package holidays, and miscellaneous goods and services. Spanish and French CPI data were consistent with forecasts, hinting that the upcoming EMU number might not bring significant surprises. The focus now shifts to ECB Lagarde’s speech at the ECB forum on central banking in Sintra, where central bankers will delve into various key topics.
On a different note, Poland’s plan to subsidize up to 175,000 mortgages over five years aims to alleviate high loan costs hindering home purchases in the country. The proposal marks a shift in policy, diverging from the previous stance of caution to prevent overheating in the housing market. Meanwhile, China’s central bank announced measures to stabilize the bond market, responding to concerns over a bond bull rally potentially causing financial stability risks.
As the global financial landscape evolves, investors closely monitor political developments, economic data, and central bank actions to navigate the markets effectively. The interplay between political outcomes and market reactions underscores the importance of staying informed and adaptable in the ever-changing financial environment.