Macron’s Likely Win a
Positive for Markets
MAY 2017
The first round of the French elections is complete with two candidates advancing into the
second round: Emmanuel Macron with 24% of the votes and Marine Le Pen with 22%. Voter
turnout was average, which ultimately favored Emmanuel Macron rather than the feared
Marine Le Pen.
It is very likely that Emmanuel Macron will be the next French President after the second round of
elections on May 7, 2017.
This is a distinct positive for the market: French and periphery spreads will tighten
significantly, as the tail risk of breakup is flushed from asset valuations. The euro is
already trading up over 1%.
Rebecca Braeu, PhD, CFA
Director of Sovereign
Research and Strategy
EMMANUEL MACRON – RELATIVELY UNKNOWN
Standish Mellon
Asset Management
Company, LLC
Minister of the Economy for two years ending in 2016 at which point he started his centrist party
Emmanuel Macron, 39 years old, was relatively unknown to the public just three years ago. He was
En Marche! He is business friendly, wants to cut payroll taxes and improve education, raise defense
spending, but most importantly he is consistently Pro-European. Macron’s economic strategy
involves a “new growth model” using €50bn over five years in new investment and reform to fund
(oddly familiar?). He wants to reduce public spending by over €60bn per year by the end of five years
and favors a Eurozone parliament.
His priorities are somewhat light on detail but the general thesis is clear: pro-European
and business friendly is what a market likes.
PARLIAMENTARY ELECTIONS ARE CRITICAL
If Macron wins on May 7, then he will need parliamentary support to push an agenda. His party,
En Marche!, will hope to gain a majority of the 577 seats in the two-round parliamentary elections on
June 11 and 18. If En Marche! cannot secure a majority, then the resulting “cohabitation” between
En Marche! President Macron and a prime minister of another party could make it more difficult to
push through a market friendly agenda.
Not FDIC-Insured. Not Bank-Guaranteed. May Lose Value.
STILL, SOMETHING IS AMISS IN FRANCE
If Macron is President on May 8, then the near-term risks clearly subside simply based on his
distinctly pro-European policies. Still, something is amiss as the two Eurosceptic candidates, Le Pen
and Mélenchon, jointly capture over 40% of the votes. Globally populism is “a thing” with the exact
reason baffling even the most dedicated global policy makers. A guess points to likely macro and micro
factors pushing populism. On the macro front, global wealth inequalities, technology, “globalization”,
and the rise of lower-paying service sector jobs are all candidates that could be driving populism
trends. But on the micro front, even egalitarian France has political skeletons: a large population of
North African migrants, sharp declines in public sector and manufacturing employment.
Unless Macron makes good on his threat to reform in relatively short order, the rumblings
of disenfranchised people could emerge again over the medium term.
LOOKING FORWARD
As the risk associated with the French elections is likely to pass if Macron ultimately wins, then the
next set of elections slated in Europe will take more center stage: German elections in September and
Italian elections likely early next year. Our view is that the German elections will be something of a
non-issue. Merkel and her CDU/CSU* party have gained lost ground against the opponent,
SPD (Social Democratic Party of Germany), and coincidentally the right AfD (Alternative for Germany)
lost its momentum as it struggles with leadership. Italy is the larger risk with elections likely early next
year and a popular Eurosceptic Five Star Movement.
* CDU/CSU, unofficially the Union parties or Union, is the political alliance of two political parties in Germany, the
Christian Democratic Union of Germany (CDU) and Christian Social Union in Bavaria (CSU).
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MARK-2017-04-28-1582