The Ultimate Guide to the 2017 French Elections – Part III

The first round of the French Presidential elections is due to be held in 17 days (on 23rd April), with the likely second round two weeks later on 7th May. The eleven presidential candidates yesterday took part in the final televised debate before the first round.

Weighing their performances remains fraught with difficulty and the key question remains whether the centre-left candidate Emmanuel Macron and National Front leader Marine Le Pen are still likely to make it to the second round.

This in-depth four-part Election Series examines all core elements of the upcoming presidential and legislative elections and takes a quantitative and qualitative approach.

In Part III, I tackle five questions, looking at past presidential elections where appropriate:

Q1: At this stage can we predict with any accuracy the eventual winner?

The media would suggest that we cannot and there is certainly scope for surprises. At the very least opinion polls could be under or over-estimating candidates’ chances. But if Macron and Le Pen make it to the second round, Macron looks set to be elected President based on opinion polls.

Q2: Are French presidential opinion polls reliable?

They accurately predicted the outcome of the 2012 and 2007 presidential elections and the eventual winner of the 2002 election. But opinion polls under-estimated support for Jean-Marie Le Pen in the first round in 2002.

Q3: What are French opinion polls currently predicting?

Macron and Le Pen are neck and neck in the first round on about 25% but these polls do not account for undecided voters and turnout.

Q4: Do French regional elections tell us anything about candidates’ chances?

The December 2015 regional elections suggest that while Marine Le Pen will do well in the first round, she will struggle in the second round in the face of concerted political opposition.

Q5: What are the odds of a left-wing candidate becoming President?

While Mélenchon is likely to come a credible fourth, based on current opinion polls, neither him nor Socialist Party candidate Hamon are likely to get even close to making it to the second round.
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EM currencies, Fed, French elections and UK reflation “lite”

Rising US yields, stronger dollar, FX outflows from emerging markets into US equities, President Trump’s still uncertain policies regarding global trade and country-specific concerns continue to weigh on EM currencies.

But the pace of depreciation in EM currencies has abated, with a number of central banks hiking their policy rate and likely intervening in the FX market. China is manipulating its currency but perhaps not the way that US President Trump thinks.

With the market having almost fully priced in a December Fed hike, it will focus on FOMC members’ likely further downward revision to their forecasts for the appropriate policy rate.

Commentators are making a number of assumptions about next year’s French presidential elections and the potential impact on the euro. Some seem reasonable, others less so.

The first assumption is that Fillon will beat Juppé in the second round run-off of the Republican primaries on 27th November. This is indeed the most likely outcome.

The second assumption, which I agree with, is that no presidential candidate will clear the 50% threshold required in the first round of the elections on 23 April to become President.

The third assumption, now seemingly hard-baked, is that no Socialist candidate stands even a remote chance of making it to the second round of the presidential elections on 7th May 2017. I would argue that it is too early to write off that possibility.

The fourth assumption, which I believe is still far-fetched, is that Front National leader Marine Le Pen could win the second round to become President, which in turn would precipitate France’s exit from the EU and pressure the euro.

UK markets’ mixed reaction to Wednesday’s Autumn budget was in line with my expectations of higher yields and stronger Sterling.

Chancellor Hammond’s modestly stimulative package reflects the realities and uncertainties which the UK economy has faced since the June referendum. This is still the over-riding theme markets will have to deal with in the near and potentially long-term.

Hammond had one hand behind his back and a moving target to hit. He has backloaded spending to 2018-19 and beyond with a focus on infrastructural projects to boost languishing UK productivity. Read more