French election concerns will be a key driver of EU markets - Westpac

According to Tim Riddell, Research Analyst at Westpac, French election concerns will be a key driver of EU markets as rising polls for far-left Melenchon have been interpreted as increased populist-polarisation, causing OAT-bund spreads to widen and EUR to slide.

Key Quotes

“It is really a reflection of socialist Hamon’s poor performance. Over 30% of voters remain undecided and a substantial amount of voters are liable to shift their support. It therefore remains likely that the 1st ballot will result in a centrist (probably Macron) to face (and beat) Le Pen in the 2nd ballot. This would calm concerns and bolster EUR. In the interim, the volatility of polls will keep EUR vulnerable.”

“Brexit concerns are likely to re-emerge after the French 1st ballot as the 29th April EU (ex-UK) Brexit summit approaches.”

“Political risk and yield spreads may see EUR/USD test range lows, but it should be seen as a buy-on-dips for rebounds into mid-range.”