::: French Election Stokes Investors ’ Fears for Future Europe’s

While French president Nicolas Sarkozy managed to eke out one of the top two spots in the first round of presidential voting, a second term is far from assured. Yesterday, French citizens took to the polls in the first round of presidential voting, and while the incumbent finished up among the top three, he was bookended by Socialist candidate Francois Hollande and far-right candidate Marine Le Pen; with the counting over, Hollande had received 28.6% of the total vote, Sarkozy 27.1%, and Le Pen a surprising 18.0%.
It is certainly a high probability that any French president would find his or her neck on the proverbial chopping block given the current economic situation in the Eurozone, in general and France, in particular. As is the case in many other Eurozone states, the people are angered over the lack of growth prospects, high unemployment and implementation of austerity measures to reduce sovereign debt. In the case of France, they are also frustrated, like their German counterparts, with having to bear the burden of driving the Eurozone’s collective economy.
Markets know where President Sarkozy stands as regards France’s economic future, though he has recently made some concessions to hopefully draw in Le Pen’s supporters. Meanwhile, candidate Hollande said it would be his job as president to “put Europe back on the path of growth and employment.” Further, he said that as president he would seek to renegotiate the E.U. treaty on fiscal discipline and monitoring which was strong-armed through the E.U. Parliament by both Nicolas Sarkozy and German Chancellor Angela Merkel and which remains a bone of contention among several of the E.U. member states.
Hollande’s declaration of that intent is giving markets cause for concern, as it would open the door for any or all of the other E.U. members, some of which had clearly been less than enamored by the Treaty, to withdraw their support. Markets are also keenly aware that, irrespective of the outcome and despite the oppositions’ disavowal, the winner will have little choice but to continue on with the unpopular austerity measures.
eToro’s Senior Analyst, Lior Alkalay, had this to say, “the fear among investors – which are also the Eurozone’s creditors – is simple and justifiable; the French election is just the latest event in an overall wave of socialism which will flood Europe and push austerity into the unknown.”
Indeed, given the unknown, equity markets had opened markedly lower in the first day of trading following French presidential voting. France’s CAC-40 had earlier been the loss leader among the Eurozone’s three major indices, and is currently down by 45.92 points, or 1.44%. By a ratio of 2 to 1, sentiment on OpenBook is bullish.
The EUR/USD pair is also lower at 1.3150, and sentiment appears to be nearly evenly split between bulls and bears on OpenBook. OpenBook guru pyruss has been placing sell orders over the past several hours, even as he’s had two short positions close with profits of 3.4% and 2.3% each. Several long positions opened earlier today are also nearing break-even as of this writing. This guru has allocated more than 86% of his portfolio to the EUR/USD pair which has provided a gain of 0.9% over the past six months to him and his 589 copiers. This guru’s recorded P&L for the week stands at 1.1%, for the month at 3.2%, quarter at 8.8% and six months at 41.8%. One of OpenBook’s most active and prolific traders, pyruss has executed 1323 trades over the past six months, with 99.7% of them resulting in a profit.
OpenBook trader berufstouri, who has two followers, closed a short position with a 10% gain earlier, which followed another that was copied from fellow German and OpenBook guru babczyk. This trader allocates 70% of his portfolio to the EUR/USD, which has provided a return of 5.6% over the past month. Overall, this trader’s P&L in the same period is 15.3% and improves to 33.3% for the quarter.
To analysts, the French President’s absence from the top spot sends a clear and loud signal that France’s citizens are looking for anyone other than Sarkozy to be country’s champion. What is next is a May 6th run-off of the top two candidates to determine the next French president. None of the other candidates have yet thrown their support to either of the front-runners, so the real question is how the constituents who did not support either will now cast their vote.