Macron and Le Pen Beat out French Traditional Parties

The French political establishment has been left reeling by yesterday’s first round election results, as Emmanuel Macron and Marine Le Pen take the top two spots going in to the final vote on May 7th. Centrist Macron is the current favorite, with a slight lead over the more Nationalist Le Pen, and political experts are waiting to see how the defeated third place campaigner Melenchon will direct his supporters. The difference between the two platforms could not be starker, with Macron supporting the EU and Le Pen advocating for France to follow Britain’s exit.

Macron and Le Pen set to face off in second round of French elections.

Macron Injects Moderation into Centrist Campaign

Macron represents a new realistic approach towards France’s brand of socialism, with calls for reduced corporate taxes, more flexible working hours, and lower taxes for homeowners. While he is not a member of a popular party, he has already garnered support from the fourth and fifth place finishers, who together gathered 25 percent of the vote. Macron also has the support of the banks, as he has backed free trade throughout the EU and also has pursued economic agreements with other countries such as Canada. His likely win has energized the market, and triggered stronger than expected gains for the Euro and the London FTSE index.

Immigration and Poor Economy Helped Le Pen Finish Second

While Le Pen’s making it to the final was not desirable for most investors, it was generally seen as a likely outcome. France’s recent issues with immigration have led to a strong reaction against Syrian refugees and the largely Muslim immigrant population fleeing civil wars and economic chaos in Africa, particularly the regions once colonized by the French. Additionally, many citizens are upset about the amount of assistance going to partners such Greece and Italy, while France languishes behind the U.K. and Germany as the EU’s third largest economy.

French Departure from EU Could Kill Eurozone

Le Pen argues that France will do better by returning to the Franc as a national currency, and ultimately by ending its relationship with the EU. Economic analysts worry that if both the U.K. and France leave the partnership, the Eurozone will effectively cease to exist, and Europe could be plunged into a recession equal to or worse than the period from 2008 until 2015, where a banking industry collapse set back GDP and wages around the world. While the polls predict a likely win for Macron, investors are definitely planning on taking advantage of the two week honeymoon period before the election to trade buy the euro.

Historic Loss for French Traditional Parties

This is the first time since the end of World War II where neither the Republicans nor the Socialists have had a candidate reach the final round of the Presidential election cycle. However, while the Presidency may not belong to a major party, in June the country heads back to the polls, where traditional parties are still in charge. Whichever candidate ultimately secures the country’s top political position will still be heavily dependent on the establishment when it comes time to pass promised legislation. This certainly gives a boost to Macron, whose political career began when he became an aide to Socialist President Francois Hollande.

Macron Win Turns Centrist Tides in Europe

If Macron meets expectations and wins the Presidency, this could be a good sign for the remaining elections scheduled for Europe during 2017. U.K. Prime Minister announced surprise elections for June earlier this month, and Germany has a federal election set for September. These contests, along with the results of the upcoming French elections, will set the stage for European politics for the next several years. While Great Britain seems likely to become more nationalist, both France and Germany are leaning towards a renewed association with the EU, which will hopefully make it easier to come up with solutions designed to improve the economic situation in the countries experiencing economic hardship.

How Will the French Elections Affect Trading?

The market has already begun preparing for Macron’s expected win by banking heavily on the euro. Because this will also lead to better relationships throughout the Eurozone, look for the dollar and pound to drop, while the CAD could see a rise based on Canada’s new agreement with the EU. Gold is likely to see a fall as the world breathes a sigh of relief as the likelihood of a French exit from the EU lessens.