Here’s What’s Changed: “Markets Might Not Have To Wait Two Weeks To Sell Off”

It’s probably safe to say we’ve reached something that approximates “peak” French election analysis on Wall Street.

No one wants to be the macro (or rates or FX) strategist that didn’t weigh in and/or recommend a hedge or a trade.

Similarly, everyone is trying their hand at palm reading. Every poll is parsed. Previous election results are scrutinized. Anything to avoid what happened with Brexit and Trump, when everyone (including the pollsters themselves) failed miserably when it came to predicting outcomes. No one is taking much solace in the fact that just last month we dodged another (blond) populist bullet in the Netherlands and indeed that’s probably because the outcome here is far less certain (“Geert risk” was falling into the Dutch election while “populist risk” is rising into Sunday’s first round in France).

Last week, Citi was out with their latest attempt to make sense of things and I suppose, given how big of a deal this is, any incremental information is worth highlighting.

But before we get to that, here’s the latest from a reader who regularly updates us on his take. So far, he’s been remarkably prescient…

A safe pair of hands ?

The elections in France earn average but not great coverage worldwide

This is understandable, were it not for the uncertainty highlighted by the polls, with no less than 4 ‘front runners’ sharing more or less equally 90-92% of the vote (with about 8-10% split between the other 7 candidates)

This is troubling because 2 of these front runners have crafted an engaging populist discourse and seductive policies for voters who feel let down by the whole world and are eager to ‘regain control’ of their destiny… This may sound familiar, does it not ?

The difference with UK and US (and Dutch and German) recent political shifts is in the number, with two front runners mining discontent and hoarding more votes (percentage wise) than in any other democracy

Next Sunday the 2 populist candidates are not expected to come out on top because, ultimately, France is a conservative country but… a surge in votes from the young targeted by Mr Melenchon (extreme left) as well as Ms Le Pen (extreme right) cannot be discounted.

Looking for a ‘safe pair of hands’, the French voter are expected to turn to Mr Fillon and Mr Macron – and either one should come out as challenger of Ms Le Pen in the second round of this election

Mr Fillon (traditional right with catholic coloring) is currently leaning to his right with ‘law and order’ policies – if he comes out ahead in the first round, he will be supported by Mr Macron in the second round by smoothing his more radical proposals – in summary, nothing much changes

Mr Macron is currying support left of center, and as challenger of the French system without a true electoral base, his position is weaker than Mr Fillon – if he comes out ahead, he too will benefit from support from the ‘traditional’ right and from Mr Fillon – again, nothing much changes

Mr Fillon has regained momentum after revelation of his dismal personal financial gains and Mr Macron has been losing steam

These two candidates are now in a tie

But again, nothing much changes…