The rise of the moderates, eyes on France
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THE RISE OF THE MODERATES, EYES ON FRANCE
As Britain's centre-left Labour party enters government, markets are now wondering whether centrist parties in France could gain enough support after Sunday's election to cobble together a majority and defeat Le Pen's National Rally (RN).
While the latest polls are indicating that the RN will win the most seats, they look set to fall short of an absolute majority, leading most to expect a hung parliament.
But, according to analysts at Jefferies, a possible split of the Left Alliance and the emergence of a more moderate group could come close to forming a government.
"The 'Moderate Group' would exclude both the far left and the far right parties, with Macron's ENS in a dominant position," Jefferies writes.
"Whether such a group can be formed post elections is uncertain, but it would give more weight to the centre parties."
In their base case, the "moderate group" would be able to reach 286 seats, falling just short of the 290 needed for a majority.
"The above scenario, if realized could be more positive than current market pricing," Jefferies says.
"It would mean lower tail risk of extreme policies as well as a more proactive approach to reforms and the deficit picture."
"A moderate group excluding the far right and the far left is well within the range of possible outcomes for a new government formation and would be positive for the market."
(Samuel Indyk)
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