Market Data 
The legislative snap election will take place in two rounds with the first round scheduled on the 30th of June and second round on the 7th of July.
Macron’s decision to hold snap elections surprised markets and created serious political uncertainty in the eurozone. And, as we get closer to Sunday, here are the forecasts of economists and researchers of seven major banks.
Danske Bank
We can look forward to several significant events and data releases throughout the summer. The upcoming French elections on the next two Sundays could likely result in a “hung parliament,” easing market concerns about significant spending increases. Should the National Rally (RN) win an absolute majority, we anticipate a rise in spending. However, RN’s recent scaling back of expensive initiatives and softer EU rhetoric suggest that the yield spread to Germany will decrease in either scenario.
ING
If a candidate does not secure 50% of the vote in the first round, only the top two candidates go forward to the second-round vote on 7 July. Given the polls point toward Marine Le Pen’s faction at 35% of the vote, the Leftist coalition at 28% of the vote, and the centre at 20%, President Macron’s party looks set for a wipeout in parliament. The question for the market is whether a Le Pen government looks at the French bond market and starts dropping some of its plans for seemingly unfunded tax cuts – or pushes ahead. Our eurozone team suspects it will be too early for a new government to substantially water down its pre-election pledges and that it may well be a rocky few months into September – when France needs to deliver to Brussels its plans on how it will fix its 5%+ budget deficit.
OCBC
France’s National Assembly has 577 seats. For an absolute majority, a party needs 289. Anyone who scores >50% of the vote with a turnout of at least a quarter of the local electorate automatically wins a seat. Candidates who fail to garner at least 12.5% of the vote will be eliminated. Those who won >12.5% of the votes will go into the second-round face-off on 7 Jul. As of 27 Jun, polling firm Harris Interactive Toluna predicted 250 to 305 seats for far right Rassemblement National (RN) party and its allies while IfopFiducial suggested 260 seats. Other polls suggest that turnout this year could be higher at around 60%. Polls continue to show consistency in the order: RN most popular followed by left wing party and then Macron’s party is far behind. Polls are pointing to a big defeat for Macron and is suggesting a hung parliament at the moment.
ABN AMRO
Various polls clearly suggest a win for the radical parties over the centrist government, which might lead to three different scenarios in our view. Scenario 1 (Far-right in power – Base case): The far-right gains a (relative) majority but most of its political program would not be possible to implement in those three years. Although we expect fiscal deterioration under this government, this should remain limited assuming the party does not want to trigger a debt crisis, which would scupper its chances to gain full power in the 2027 election. Scenario 2 (Far-left in power – Negative): The most worrying scenario in terms of the economic and fiscal outlook would be a government led by the left coalition. Their political and economic program appears more radical than any other party and would create significant distrust in the market. Scenario 3: (Hung parliament – Benign): None of the three political blocs obtain a clear majority, putting the government on hold for at least a year. This would not be a positive outcome, but it would at least mean no further deterioration in government finances, in contrast to the two scenarios above. One thing is clear: in any of the possible scenarios described, France’s fiscal deficit is unlikely to go back to the 3% deficit target by 2027 as promised by the current government.
Rabobank
Macron’s centrist party was dealt a painful blow in the European elections. Consequently, Macron dismissed parliament and called new parliamentary elections. If Macron’s party wins a majority, we expect an emboldened Macron to pursue more ambitious reforms with improved debt sustainability as a result. A relatively small change in seats could work out well for Macron if some of the left-wing parties don’t unite and are willing to work with him. A right-wing government (cohabitation) would lead to more policy inertia and worse debt metrics.
Although Macron’s announcement came as a surprise, there is a possibility that new elections could work in his favour. However, the likelihood of this scenario is quite low. It is more probable that Macron’s political standing will diminish, albeit not to the extent of preventing him from establishing a new government. Nevertheless, it is crucial to recognize that this course of action carries inherent risks. Macron’s party suffered a substantial setback in the European elections, and unfavourable results in the upcoming elections could exacerbate concerns regarding the sustainability of the country’s debt.
MUFG
On Monday we will know exactly how squeezed out the centrists candidates were in round one and the greater that squeeze is the greater the chance of an outright majority in round two for RN or perhaps the New Popular Front. Based on the polling we believe there are perhaps four plausible scenarios: 1) RN wins the most seats but falls short of an outright majority (45%); 2) RN wins an outright majority (25%); 3) NPF wins the largest number of seats but falls short of an outright majority (20%); 4) there is no clear winner and we have complete paralysis with no obvious root to a working government (10%). These are initial scenarios evident in the immediate aftermath of the second round election on 7th July. In other words, scenario 4) could eventually shift and a government is formed but initially it is not obvious.
We have also raised the probability of an RN outright majority based on the interviews from Marine Le Pen and Jordan Bardella that certainly point to a willingness of RN to be pragmatic and possibly park some of their initial more contentious policies for a period of time. The tone from RN certainly suggests the flippant spending and large fiscal deficits touted in 2022 are unlikely which would potentially contain the market fallout in scenario 2). Based on RN communications it seems the worst scenario would be scenario 3) and certainly from a bond market perspective this would fuel the widest OAT/Bund spread move. Scenario 4) is not particularly positive either but the market move might be contained on the hope of an eventual path to a governing coalition can be found.
Deutsche Bank
Staying on politics, it’s going to be an important weekend for markets ahead, as the first round of the French legislative election is taking place on Sunday. Clearly, we won’t know the full results until the second round on July 7, but it will offer a better sense of the likely outcomes in terms of who can reach a majority, if anyone. As it stands, the latest Ifop poll yesterday showed Marine Le Pen’s National Rally on 36%, ahead of the left-wing alliance on 29%, and President Macron’s centrist group on 21%. In terms of seats projected in the National Assembly, that poll suggests the National Rally and its allies would end up with 220-260 seats, falling short of the 289 necessary for a majority. Alongside that, the left-wing alliance would get 180-210 seats, and President Macron’s group would be on 75-110. As a reminder, my team published a two-part guide to the French elections running through the situation and the implications for Europe.
