CAC: Far-Left Coalition Wins French Election, May Result in Hung Parliament

The second round of the French general election gave an unexpected victory to the left-wing alliance National Front.

The coalition is led by the far-left France Unbowed, which has an agenda of higher public spending financed by tax hikes. Despite the alliance’s unexpected win, they fell short of an outright majority of seats.

Exit polls show the coalition led by Luc Melenchon could land between 184 and 186 seats of the 577 seat Assembly.  Far short of the number needed to command a majority, and the other two parties make unlikely candidates for alliance.

Marine Le Pen’s National Rally looks set to score between 141 and 143 seats, a big improvement on the last general election where they landed 89 seats. While Macron’s technocratic party may win between 160 and 162 seats.

The political landscape is divided, with two parties from the far left and right, and Macron’s party which believes in running the country like a corporation. The situation means the current Assembly prime minister will resign later in the day.

A New Prime Minister

The President of France will then choose a new candidate as prime minister to form a cabinet. The candidate is likely to come from the far-left alliance, and specifically from Melenchon’s France Unbowed party.

This means Macron may have to work with a party that is completely opposed to his policies. One of the campaign promises from Melenchon was to bring the retirement age down again. Macron raised the retirement age, among widespread protests, to 64 years of age.

France Unbowed campaigned on bring it down to 60, this move would cost 100s of billions to the treasury. Likely bringing bond yields higher and putting pressure on the stock market.

Legislation of this kind would also move in the opposite direction required by the EU, which is asking for the French government to make cuts in spending to bring back in line its debt to GDP ratio.

The CAC opened down this morning by 0.4%, to then recover along with other major stock indices. The market is currently up 0.33% on the day, while the specter of a hung parliament remains on the sidelines.

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Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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