Most polls show Emmanuel Macron is favoured to win the presidential race when French citizens head to the ballot box on Sunday 10 April, where he’ll face off against 11 other candidates. Those same polls show he would also come out on top in a one-to-one challenge a fortnight later. 

A few reasons come to mind, and the strength of the economy is chief among them. Gross Domestic Product (GDP) is now back above pre-pandemic lows, outperforming regional peers and the unemployment rate is close to 50-year lows. Meanwhile, fiscal support remains robust. Macron beat many of his regional peers in acting to cushion the blow from higher energy costs. 

And, despite the fact that strengthening European integration hasn’t necessarily been top of mind for voters, the covid pandemic and rising geopolitical tensions have vindicated two related pro-EU policies that he has explicitly backed: fiscal convergence (think EU recovery fund and joint purchases of vaccines), and, the need for common European defence, which has become more or less consensual following Russia’s invasion of Ukraine.

As with any political campaign, quite a bit. Macron is a polarising figure, though in a different way to those on the extreme right or left. His positioning as ‘not on the left, not on the right’ is a careful attempt to portray himself as a competent centrist, but many voters just don’t find that kind of spectrum ambiguity relatable.

That neutrality could pose problems in the run-off, especially given the rise of right-wing candidates over the years and the weakness of the (centre-)left. Left-leaning voters may prefer to abstain rather than to vote for a President who they view as having leaned to the right despite claiming to be a centrist five years ago. Voters on the right may also split unfavourably for Macron, between abstention and Le Pen’s more robust nationalist discourse.

Abstentions in national elections are on the rise in France, but aren’t too dissimilar from European peers

Looking at polls today makes it all too easy to forget that the outcome of this year’s presidential election appeared anything but certain just weeks ago. Early on in the campaign, right-wing candidate Éric Zemmour looked a surprise contender. Republican Valérie Pécresse had a moment of glory earlier this year, at one point leaping to second place in the polls before retreating to the outskirts of the top five. Far-left Jean-Luc Mélenchon has been gaining ground steadily in recent weeks, though remains more than 10 points behind Macron.

Against that backdrop, the popular right-wing candidate Marine Le Pen has surged in popularity, with most polls now pointing towards a 2017 election rematch. Some polls give her a 10% shot at winning. Though our base case is still a Macron victory, analysts shouldn’t be so quick to discount Le Pen’s prowess. 

Le Pen is a known entity. She has polished her messaging while distancing herself and her party from the far right, two factors that held her back in past elections. As an ‘anti-establishment’ politician, her narrative on tackling the cost-of-living crisis is one that resonates with broad swaths of voters. And although polls tend to exaggerate support for right leaning or populist candidates, the margin of Macron’s lead on Le Pen seems much smaller than it was in 2017. 

At the same time, it would be unwise to underestimate the possibility that popular discontent with the incumbent could hurt Macron at the polls in the weeks ahead; incumbency hasn’t been an electoral advantage in France since Jacques Chirac’s re-election 20 years ago.

With all that said, here’s what we think markets should come to expect in the weeks ahead:

1. Volatility will rise between the first and second round of the vote – and what happens after depends on the victor: in 2017, the most volatile period for French bond markets was towards the end of round one, when a rise in support for Mélenchon hinted that the second round could be a contest between two extreme players: he, and Le Pen. This time, Macron’s presence in round two seems assured, but who joins him is far less clear given the momentum at the margins of the left and right of the spectrum. A victory of Marine Le Pen could have far-reaching consequences for markets and for assets in Europe. This is not our main scenario, by far, but it is not a completely impossible outcome either.

2. Issuance risks may increase: France is currently at the same point in its funding programme as last year, with the next long-term bond issuance taking place this week. As the first issuance following the end of the Pandemic Emergency Purchase Programme (PEPP), this will be a crucial test for investor sentiment – with a possible pricing concession passing through to corporate bond markets.

3. EUR sensitivity to politics will mirror 2017 to an extent: the euro carried a political risk premium in the run-up to the last election, and we expect the same to be true this time around – though potentially to a lesser extent as Marine Le Pen’s platform in 2022 is less Eurosceptic than it was in 2017.

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