French election: Macr-On vs Le Pen is risk-On - Nomura

According to Nomura's Global FX Strategy Team, today's French election results, with Macron and Le Pen to run off on the 2nd round on May 6th, should be interpreted as 'risk-on'' for markets, which will likely fully price in the outcome of the second round today in favour of Mr Macron.

Key Quotes

The first round results of the French election threw the market no surprises. Emmanuel Macron has come first and Marine Le Pen has come second in round one of the two-part Presidential election.

But as Ms Le Pen has a 25% or so polling deficit to Mr Macron for the second round in two weeks’ time (which is more than three times the typical margin of error) the market will likely fully price in the outcome of the second round today in favour of Mr Macron.

This matters as the market has embedded a risk premium in both EUR and OATs for some time now heading into this election.

We expect that premium to nearly completely come out of the market pricing and this should see EUR/USD finish above 1.09 on the day and we expect this to continue and are entering a long EUR/USD position.

We interpret the outcome as market positive and expect 10yr Bunds to sell off at least ~5bp, while OATs should rally ~10bp, leading to tighter spreads. If Mr Macron wins in line with expectations we think 10yr OATs will rally a further ~15bp.