At the next intersection, we turn right - these are the words that come to mind when observing the events surrounding the elections in the world's major economies. Yesterday's debate between Joe Biden and Donald Trump can be summed up by the fact that as many as 67 per cent of those polled considered Trump to have won. Meanwhile, on the other side of the ocean, the first round of the French parliamentary elections will take place on Sunday, where, for the first time in many years, a far-right party could win. Let's consider what impact right-wing wins might have on markets in the future.
Table of contents:
What impact will Biden's loss have on the markets?
The debate could be decisive for the presidency of Biden, who gave the impression of being lost and confused. According to observers, his answers on the economy and immigration were incomprehensible. The vast majority felt that Trump won the debate. However, we are not yet seeing any major turbulence on the financial markets because of this. The dollar remains strong, as do the US indices, which are hitting new historic highs week after week.
Source: Conotoxia MT5, US500, Daily
However, we did not hear any concrete proposals from either candidate about the future of the economy. Instead, we have witnessed numerous accusations and references to the achievements of governments that have already taken place. As a result, it is currently difficult to predict what decisions either candidate will make. Nevertheless, the market seems to be gently pricing in a potential Trump win.
Source: Bloomberg
Right-wing France, and falling indices and a weakening euro
Investors have a completely different perception of a potential win for Marine Le Pen's National Rally, in France, which consistently enjoys the highest support of 35 per cent in recent polls. The coalition of left-wing groups can count on less than 30 per cent of the vote, while one in five respondents is a supporter of President Emmanuel Macron's centrist camp. The scale of the potential victory of the far right will probably only be possible to estimate after the second part of the vote, i.e. after 7 July, which means that political risks will also persist at the start of the new quarter.
The poll results have left the EUR/USD unable to break away from the 1.07 area. Uncertainty can also be seen on the Paris stock market. The main CAC40 index is down for the third consecutive session today. In the scenario of a decisive victory for National Rally, the pressure on the euro will intensify and EUR/USD could be heading towards the key barrier of 1.06. Traditionally, during episodes of political crises on the Old Continent, investors should flee to safe, defensive currencies, namely the franc and the dollar.
Source: Conotoxia MT5, F40, Daily
In such situations, it is also worth looking for opportunities because, according to the popular stock market adage 'buy the rumours, sell the facts', there may be some deadlock after the election, forcing both parties to look for coalition partners to form a government. Historically, such a situation has had a positive impact on equity markets as it significantly reduced regulatory risk. As a result, the CAC40 index may return to its upward trend after the election, especially as no significant business risks are currently visible.
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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