markets skittish as far-right candidate Le Pen closes gap

French markets have been jolted as new polling shows far-right candidate Marine Le Pen closing the gap to incumbent President Emmanuel Macron ahead of the country’s presidential election.

The latest Ipsos Sopra Steria Cevipof poll for Le Monde newspaper on Wednesday gave Macron a projected vote share of 26.5% to Le Pen’s 21.5% in the first round of ballots on April 10, compared to 28% for Macron and 17.5% for Le Pen in the last poll conducted March 21-24.

French bonds slid sharply on Tuesday as a fresh poll emerged, sending the benchmark 10-year yield to its highest since 2015, while the CAC 40 stock index underperformed the rest of Europe to fall by almost 1.3% and continued to retreat on Wednesday.

Although Macron is still favored to win a run-off on April 24, Le Pen, leader of the far-right National Rally party, is now in her strongest polling position yet on a platform focused around restricting immigration and boosting law enforcement funding. The National Rally has also proposed new pledges aimed at working people concerned about the cost of living, such as a wealth tax.

The candidacy of Éric Zemmour, seen as even further to the right than Le Pen, has aided her efforts to appear a more moderate option than previously perceived and become palatable to portions of the center-right disillusioned with Macron’s tenure.

Antonio Barroso, deputy director of research at Teneo, said in a note on Wednesday that voters had begun to coalesce around the candidates with the highest chance of making the run-off, with Le Pen gaining voters from Zemmour.

Barroso said the risk of a Le Pen victory has increased, but Teneo still foresees a 75% probability of Macron retaining the presidency.

Some of the skittishness in markets at the prospect of a Le Pen presidency has been attributed to concerns around the political and economic unity of Europe’s response to Russia in the wake of its invasion of Ukraine.

Le Pen has in the past shown sympathies for Russia and President Vladimir Putin, and has been openly skeptical about the European Union.

“Against our expectations, Le Pen has been able to avoid criticism on her past links with Russia, focusing instead her messaging on the rising cost of living with popular but unrealistic measures such as eliminating income tax for under-30s,” Barroso said.

“The fact that there have not been proper debates between the candidates might be helping her ability to become the most credible candidate on the purchasing power issue, while the rally ’round the flag dividends have faded for Macron in the last few days.”

After losing the run-off resoundingly in 2017, Le Pen is no longer campaigning on an exit from the EU or the euro, but her ascent to the presidency would likely throw a wrench in the works for the bloc.

Kallum Pickering, senior economist at Berenberg, said in a note Wednesday that while Le Pen would not be able to roll back European integration, further progress would likely stall.

“With her agenda of protectionism, reform rollbacks, subsidies and harsh measures against immigration, she would likely trigger many conflicts with the EU. The European Commission may then take France to the European Court of Justice for violating EU rules in many cases,” Pickering said.

“Her spending proposals could violate EU fiscal rules once these are re-instated in 2024 after a likely new suspension in 2023 due to Putin’s war.”

Soon after taking office in 2017, Macron implemented sweeping economic reforms, cutting taxes on investors and the wealthy and relaxing hiring and firing rules. Data suggests the French economy has bounced back more strongly than most of its peers, having entered the Covid-19 pandemic during a period of outperformance.

Berenberg has long held the view that Macron’s reforms would position France as the EU’s “growth engine” over the next decade, but Pickering said this would be at risk with Le Pen at the helm.

“Although a short-term fiscal boost may sustain near-term momentum, subsidies, protectionism and reform rollbacks would hurt France’s growth potential,” he added.