“Frexit” Odds Decrease

April 24, 2017 | by Scott Miller, Jr.

The European markets and the majority of developed country stock markets are rallying on Monday after the first round of voting in French presidential election. Emmanuel Macron and Marie LePen will now face off on May 7th. This was considered the ideal scenario for the future of the European Union as polling predicts that pro-EU candidate Macron will easily defeat anti-EU candidate LePen. Should polling show LePen gaining ground on Macron before the May 7th election, expect EU worries to resurface.

Markets are breathing a sigh of relief as it appears that a “Frexit” situation has been avoided and the long-term viability of the EU is more secure today after the election. The worst case scenario would have seen the two anti-EU candidates Le Pen and Jean-Luc Mélenchon moving on to the May 7th run off. Make no mistake, although France’s standing in the EU appears secure, the election results represent a repudiation of politics as normal in France. Macron and Le Pen both considered political outsiders were able to defeat Republican Francois Fillon who garnered 19.94% of the vote and Socialist Benoit Hamon who earned only 6.35% of the vote. The Republicans and Socialists have dominated French politics for the last 60 years akin to the Republican and Democratic parties in the United States. Marcon a 39 year old political newcomer supports free trade, a reduction in business taxes, and a reduction in public spending. However, it is his support of the EU that has markets up today.

The current polls show that in a run-off between Macron and Le Pen, he has been 20-30% ahead of his challenger.  While it appears that the EU has dodged a bullet, close monitoring of the May 7th runoff remains warranted.