In France, the Rassemblement National and its allies won 33% of the vote in the first round of the French General elections, confirming the reliability of the polls and a record participation rate that will legitimize the assembly that will emerge next Sunday.
The second round puts a record number of triangular situations in, which is traditionally favorable to the Rassemblement National. The number of withdrawals, the final outcome of which will be known this evening 2nd July, will be a key indicator of the likelihood of a majority for the far-right party in parliament, a much less favourable scenario for markets than a hung parliament which limits the room for maneuver for the next government and the risk of a major slippage of public finances.
In case of absolute majority, the Rassemblement National would then be in a position to impose a programme based on anti-Brussels rhetoric and heavy budget deficits, at a time when the European Commission is expecting France to drastically reduce its public deficit by at least 0.5 points of GDP per year in order to return to a deficit at 3% of GDP.
The markets seem to be opting for the assumption of a hung parliament with relative majority for the far right and have reacted rather positively, with the OAT/Bund spread tightening by 5 to 10 bps, credit spreads narrowing and the political risk premium falling.
You can find all our analysis of the first round in a special election webinar.
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