Campaigning in the French presidential election is drawing to a climax with the first round vote taking place this weekend. The polls strongly suggest that none of the candidates will gain a simple majority, meaning that it is almost certain to go to the second round (slated for May 7th).
As we noted in our last Market Insight looking at the French presidential race, crowd anger towards the government surged during the campaign, hitting an eleven year high in early March, readings indicative of a large reservoir of public negativity.
Although such sentiments are specifically designed to capture views expressed towards the government, almost certainly it is reflective of a more general sense of public pessimism with mainstream politicians. Indeed, tallying up the support for three of the four leading presidential candidates implies that two-thirds of French voters have rejected the mainstream political parties. This is an amazing shift in the French political landscape and has been a dominant influence on the presidential race.
Exhibit 1: Government Anger Sentiment – France
Early on in the campaign, such conditions favoured National Front leader, Le Pen. However, more recently, it is the leader of the far left party, Unsubmissive France, who has been better able to tap into this negative public mood. Indeed, after a strong performance in the second televised debate earlier this month Mélenchon is currently neck-and-neck in the polls with scandal-impacted Fillon and within touching distance of the two front runners.
Mélenchon’s success has been a surprise and clearly unnerved investors in French financial assets. While not as ardent in his opposition to the EU as Le Pen, who favours leaving the single currency, Mélenchon is critical of the project in its current form and has pledged to hold a referendum on continued membership if the rules are not changed. Hence, concomitant with his ascent in the polls, perceptions of French economic growth have fallen, economic uncertainty has increased and worries over financial instability have risen – see exhibits below. Trends very reminiscent of those seen in the UK crowd sentiment data prior to last year’s referendum vote.
Exhibit 2: Crowd-Sourced Economic Growth Sentiment – France
Exhibit 3: Crowd-Sourced Financial Instability Sentiment – France
Given that Macron, unlike Le Pen or Mélenchon, is a pro-EU candidate, only in the event that Le Pen and Mélenchon beat the current front runner and both make it to the second round are such worries likely to solidify into reality. This is because opinion polls show Macron beating all the leading candidates in the second round and by a considerable margin.
Such an outcome has a low delta in our view. Referring back to exhibit 1, government anger in France is elevated but subsiding, not the sort of conditions that favours the two candidates at the extreme opposite ends of the political spectrum both surviving to the second round.
Hence, despite all of the jitters ahead of the first vote, so as long as Macron makes it past the first round then he will almost certainly come out as the overall victor – our expectation. At this point, the risks embedded in the crowd’s current thinking, and reflected in the pricing of French financial assets, should be rapidly unwound, setting the stage for a solid rebound.
 The main differentiator between Le Pen and Mélenchon is over immigration. In terms of economic policy, there are many similarities.
 In the event that Le Pen and Mélenchon both make it to the second round Mélenchon would become the overwhelming favourite to succeed.
 This reflects the fact that although the economic policies of Le Pen and Mélenchon are similar in many regards, they hold strongly divergent views on immigration. Hence, the chance of tactical vote switching between the two supporters of Le Pen and Mélenchon between the first and second rounds to block Macron is low.