Shares on the French stock market have risen after the first round of voting in the country’s parliamentary election eased concerns about an outright victory for the rightwing National Rally (RN) party.
The euro rose against the dollar, while the risk premium investors demand for holding French government bonds fell as the markets took the view that the result could have been worse.
But despite a 1.5% jump in France’s benchmark stock market measure – the Cac 40 – on Monday, shares have fallen 5% in the past month amid fears that Marine Le Pen’s RN could still emerge from next Sunday’s second round of voting with an overall majority.
RN secured 33% of the vote, while the leftwing New Popular Front secured 28% and Emmanuel Macron’s centrist bloc won the support of 20% of those who voted.
Alex Everett, an investment manager at the fund management company abrdn, said: “We are not out of the woods yet. The National Rally exceeded expectations and may yet pick up the second-round votes for a relative or even absolute majority.
“Intense horse trading until Tuesday evening will likely see deals cut between the left and centre parties to try to derail this.”
On Friday, the gap between the interest rate (yield) on French and German bonds had widened to its highest since the eurozone debt crisis in 2012, but the spread narrowed slightly from 0.85 percentage points to 0.75 points after the results came in. The gap was less than 0.5 points before the snap election was called.
Krishna Guha, an analyst at the US investment bank Evercore, said: “The vote is far from definitive but leans in favour of the less bad scenario of a hung parliament, political paralysis in Paris and chronic dysfunction at the EU level rather than the worse scenarios of an outright win for the far right or far left that might directly lead to a new European sovereign crisis.”
Guha warned that the fall in the stock market since Macron announced the election and the only partial narrowing of bond spreads underlined “that material risks remain heading into the second round vote Sunday and beyond”.
