French second-round vote outcome is unpredictable – UBS

The first round of the French elections produced results broadly in line with opinion polls, UOB Analyst Paul Donovan notes.

A weak government can’t tackle fiscal problems

“An unusually large number of second-round votes could be three-way contests. That makes the final outcome harder to predict. In the past, there has been a “front républicain” with third-placed moderate candidates withdrawing to increase the chances of defeating a more extreme party. It is not clear how many constituencies will follow such a strategy.”

“It now seems less likely that one group will have a majority after the second round, but investors would be unwise to place too much confidence in that. A weaker minority government is unlikely to tackle France’s fiscal situation. The elections remind investors that economic structural upheaval encourages prejudice politics.”

“German preliminary June consumer price inflation is expected to slow. Eurozone inflation is within a reasonable range of the target, and so this moderation in headline inflation supports more easing from the ECB. Several business sentiment opinion polls are due. Consumer sentiment polls are subject to political partisan bias.”