Le Pen’s poll surge rocks French bonds and bank stocks

French bank stocks fell sharply and bond spreads widened on Tuesday as investors priced in stronger poll numbers for Marine Le Pen, the far-right challenger, in the presidential election.

The risk of a Le Pen victory suddenly came more into focus before the first ballot on Sunday opinion polls showed she is gaining ground on President Emmanuel Macron, although he is still favored to win an April 24 runoff.

Stocks of BNP Paribas, Société Générale and Crédit Agricole fell 4-6 percent in afternoon trade, while bonds were hit by heightened political risks. The blue-chip CAC 40 index fell about 1.3 percent, lagging the largely flat Stoxx Europe 600 index.

The spread between France’s 10-year borrowing costs and Germany’s – a market indicator of the risk of holding French debt – widened to 0.53 percentage points on Tuesday, from 0.41 percentage points last Thursday, the widest gap since the inception of the Covid pandemic in April 2020.

“These recent surveys have worried the market,” said Peter Schaffrik, a global macro strategist at RBC Capital Markets. “It’s not just a lack of continuity that threatens. Le Pen is a very different proposal. People fear this could open a new divide within the EU after a recent show of unity.”

Le Pen’s election manifesto no longer envisages dropping the euro, as was the case last time in 2017 when she ran against Macron. But she remains skeptical about free trade and open borders.

Jérôme Legras, head of research at Axios Alternative Investments, expressed concern that the EU’s coordinated response to Russia’s invasion of Ukraine could fall apart, adding that banks tend to be a prime target for traders looking to bet against the French economy .

“There are expectations for a harmonized European response to try to mitigate the economic shock. . . and there is a concern that you would not have the same level of coordination with Le Pen,” Legras said. “You wouldn’t necessarily have the macro buffer, which is important for bank profitability.”

The war in Ukraine and Macron’s strong lead in the polls had so far overshadowed the election campaign. Investors have been far more nervous ahead of the 2017 election since it came after other surprises such as Britain’s vote to leave the EU and Donald Trump’s US victory.

Le Pen’s platform largely focuses on the central themes of the far-right movement her father founded in the 1970s: including curbing immigration and increasing funding for police and prisons.

On the economic front, she has repositioned her National Rally Party to focus on working-class people concerned about the cost of living. The rich would probably suffer under their wealth tax plan.

The shares of the two French infrastructure companies Vinci and Eiffage lost almost 5 percent; They would be affected by Le Pen’s promise to renationalize the national highway system.

“We suddenly found ourselves poring over Le Pen’s program on tax issues,” a banker said in Paris, adding that few in financial circles had bet on anything other than a Macron win for weeks. That still remains the central case, the banker added, but the possibility of a Le Pen victory has started to focus heads.

“Economically, it could be a disaster,” said the banker. Le Pen’s poll surge rocks French bonds and bank stocks

Adam Bradshaw

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