Analysts react to the results of the European elections and Macron’s surprise

This article was originally published in English

European assets experienced a risk aversion session following the results of the weekend’s parliamentary elections. The euro was down 0.6% against the US dollar, standing at 1.0760 at 1:10 p.m. This, combined with the 0.8% drop last Friday, marked worst two-day performance of the single currency from the beginning of February 2023.

In it equity market, all European indices traded in negative territory. The CAC 40 in Paris was the hardest hit, falling 1.7%, on track for its worst session in almost a year.

French values ​​suffered a general declinewhich especially affected banks such as Societé Générale and BNP Paribas, with drops of 7% and 5% respectively. Additionally, large-cap companies such as Hermès and LVMH fell by around 2%. He German DAX index fell 0.7%, while the Italian FTSE MIB lost 0.9%. The Euro Stoxx 50 fell 1.2% and the Euro Stoxx 600 fell 0.6%.

Election results reveal the rise of far-right parties

Despite the fact that the current majority coalition in the European Parliament – formed by the centre-right European People’s Party (EPP), the centre-left Socialists and Democrats (S&D) and the liberal group Renew – maintained leadershipthe surprise came from the results in France and Germanythe two main European powers.

In Germany, Chancellor Olaf Scholz’s Social Democratic Party won the worst result in its history, falling to third place behind the far-right Alternative for Germany. In France, President Macron has unexpectedly called early legislative elections after his Renaissance party underperformed the National Rally of Marine Le Pen. The first round of the Parliamentary election It is set for June 30, and the second for July 7.

In Italy, Prime Minister Giorgia Meloni’s right-wing Brothers of Italy party significantly improved its position, winning 28.8% of the votes. This represents more than quadruple your quota in the 2019 European elections and exceeds the 26% it achieved in the 2022 national elections, when it came to power.

Although the EPP won the largest number of seats, strengthening Ursula von der Leyen’s candidacy for a second term as Commission president, the rise of far-right parties in lto opposition poses a challenge to passing key legislation needed to address security issues, energy policies and military alliances.

Analyst reactions

Luca Cigognini, market strategist at Intesa Sanpaolo, commented that the important defeats of Macron and Scholz had a Strong impact in the behavior of the EUR/USD at the opening of the European market.

He noted that the EUR/USD pair failed to hold the technical support of 1.0800 and fell to 1.0750. “It is possible that this movement is due to an emotional reaction and that it is short-lived,” added Cigognini, who stressed the importance of maintaining support level of 1.0740 to avoid a broader downtrend towards 1.0680.

Pablo Zaragoza, head of macroeconomics and European rates at BBVA, indicated that, although the results of the European elections were notable, they were not entirely surprising from a global perspective. The majority parties they maintained their majority in Parliament, although they lost ground to far-right groups.

He noted that “the devil is in the ‘national’ details, particularly in France.” Zaragoza also suggested that the risk aversion climate triggered by the election results would likely put pressure on the real returnsespecially in France and Italy, while countries such as Portugal and Spain could continue to obtain better results.

Chris Turner, Global Director of Markets at ING, highlighted that the French elections scheduled for June 30 could weigh on the currency throughout the month. He described the move as a gamble, questioning whether the french electorate really want a far right government or whether it is an opportunity to give the electorate three years to experience such a government before the presidential election of 2027.

Turner also noted that “risks from another uncomfortable US Core CPI print of 0.3% MoM on Wednesday will likely keep the rising dollar until we hear from the Fed on Wednesday night.”