Ahead of Sunday’s first round of the French election, we have previously provided several perspectives on the political and economic outcomes, including a permutation matrix of all six possible outcomes in terms of “high” vs “low market risk” (from BofA), why the market may be too complacent about a Le Pen – Melenchon result (candidate approval variance is within the polling error), and that European stocks have completely failed to price in any adverse outcome (as DB observed yesterday).
So with markets now closed, and all bets off, if only for the next two days until the results emerge, here is a complete guide to the first round of the first elections, compiled based on research reports by Deutsche Bank and Citigroup.
Guide to the French elections first round, from Deutsche Bank and Citi
Summary:
The first round of the French Presidential elections will be held on Sunday 23rd April.
Most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. By midnight local time we could expect to have a clear picture of who would make it to the second round.
Since publication of our initial comprehensive piece on the French elections, the polls for the four major candidates have narrowed considerably and Mélenchon has replaced Hamon on the left wing. The narrowing of the polls and the historical error in actual voting relative to polls makes any of the six outcomes involving the four major candidates possible.
In order of decreasing likelihood the potential outcomes are (1) Macron vs. Le Pen (2) Le Pen vs. Fillon (3) Macron vs. Mélenchon (4) Le Pen vs. Mélenchon (5) Macron vs. Fillon and (6) Mélenchon vs. Fillon.
Based on current polls, in our baseline scenario of Macron vs. Le Pen in the second, Macron is expected to win comfortably. Le Pen would have to win the first round with a gap of 5pp or more and/or the participation rate in the second round to fall below 60% for her chances to improve significantly.
We assess the expect market impact on bond markets based on expected yield and spread levels for a presidential win for the four candidates and indicative probabilities of a win for the candidates in the second round conditional on the outcome of the first round.
Macron is favoured to win against all candidates if he makes it to the second round. Based on current polls market concerns about French elections should recede considerably in any outcome with Macron in the second round.
OAT-Bund spreads have the greatest room to widen in case of a Mélenchon vs. Le Pen outcome, while it has the most room to tighten in case of a Macron vs. Fillon outcome. However, in the latter scenario the tightening in OAT-Bund spreads should be more than offset by the rise in Bund yields leaving OAT yields broadly unchanged.
Timeline of Sunday 23rd April:
On Sunday 23 April, most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. Press reports suggest that pollsters are worried about their ability to provide accurate exit polls at 8pm . Throughout the evening, polls are counted. By midnight local time we could expect to have a clear picture of who would make it to the second round.
At 19:00 BST / 14:00 EDT preliminary results are released, which is perceived as a usually good indicator of the final results. This will give markets a good hour to digest before Asia markets open at 05:00 Sydney / 20:00 BST / 15:00 EDT. In 2012, 80% of the vote was counted by roughly 22:00 BST. Note that polling stations in rural areas close by 17:00 BST, urban polling stations by 18:00-19:00 BST.
However, watch out for leaks. In 2012, journalists and pollsters circumvented the law by employing code names for each candidate, leaking the results of the exit polls to the public off. These reports were then quickly picked up and distributed by foreign new outlets which are not subject to French laws. On the night of April 23 look to the airwaves for news; perhaps #RadioLondres will be making another dramatic call to La Resistance.
The candidates – A four horse race:
Of the 11 total candidates, four leading the race. Citi Research’s latest probabilities of each candidate becoming President are: Macron (35%), Fillon (30%), Le Pen (25%), Melenchon (10%). What is clear is that the first round will be too close to definitively call – it’s a four horse race.
Marine Le Pen: The right-wing candidate is the main risk for EUR. She has repeated a campaign promise to propose a referendum on France’s membership in the Eurozone and EU within six months. She is expected to go through the first round with ease, but not likely to prevail in the second round, ultimately.
Francois Fillon: Conservative candidate and former PM was formerly the front-runner. However his popularity has been undermined by controversies, particularly allegations he paid his wife with taxpayer money for a job she did not perform.
Emmanuel Macron: The independent centrist and former economy minister is Citi’s base case winner. His new party En Marche has continued to gain momentum.
Jean-Luc Melenchon: The wildcard candidate has gained impressive momentum in the last month or so. The hard left wing candidate proposes a top income tax charge of 90% and to renegotiate the terms of France’s EU membership.
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