A Tail Risk Disappears As Le Pen Loses To Macron. Again

Ostensibly, markets “dodged a bullet” Sunday, when Emmanuel Macron vanquished Marine Le Pen at the polls. Again.

I say ostensibly, because despite a smattering of cautious sell-side commentary and a much tighter runoff compared to 2017, it didn’t feel like a true nail-biter. Perhaps “sigh of relief” is apt, but the margin — 57% for Macron to Le Pen’s 43% — should be comfortable enough for traders, if not for Macron himself.

Le Pen conceded quickly, but called the result “a stunning victory,” apparently referring to herself. That’s true by comparison to 2017, but that’s a pretty low bar. She lost by more than 30 points last time around.

Of course, nothing is truly settled. France is divided. The populist wave that swept across Western democracies starting in 2015 never receded. Taken at face value, Sunday’s results suggested Le Pen’s message resonates more now than it did five years ago.

If that’s even a semblance of accurate, it probably reflects Macron’s shortcomings more than anything else. He acknowledged as much. “She feeds on the things… I haven’t succeeded in doing, namely quelling a certain anger, responding to demands quickly enough and providing for progress and security to the middle- and working-classes,” he said. He also dissuaded voters from booing Le Pen, and declared himself “the president for everyone,” a generic nod to unity.

As Bloomberg wrote, recapping a rally at the Eiffel Tower, Macron “acknowledged that many people had voted for him simply to stop the advance of the far-right, rather than because they backed his ideas.” That’s somewhat unfortunate. The figure (above) is a snapshot of his campaign.

Olaf Scholz and Boris Johnson were quick to offer their congratulations. Scholz called the results “a vote of confidence in Europe.” Needless to say, a Le Pen victory would’ve complicated efforts to present a united Franco-German front in the face of Russian aggression.

Le Pen is famously cozy with Vladimir Putin, with whom she rubbed shoulders at the Kremlin in the lead up to the last election, which some critics suggested was tantamount to foreign interference in France’s democratic process. Then again, Scholz wrote an Op-Ed in Le Monde this month urging French voters to reject Le Pen, who he charged with “openly siding with those who attack freedom and democracy.” I imagine Le Pen would say that if her Kremlin visit in 2017 was inappropriate, so was Scholz’s Op-Ed.

That said, Scholz is obviously (and objectively) correct. Le Pen is a suboptimal choice in any context, but electing her now would be fraught with peril. Her party has (or had) financial ties to Russia and she previously advocated for a lifting of sanctions tied to the annexation of Crimea. She was forced to shift gears in March, following the Ukraine invasion, which she described as a step too far. “The Vladimir Putin of five years ago is not exactly that of today,” she told French media, calling the incursion “a clear violation of international law and absolutely indefensible.”

As The New York Times dryly noted last week, she “included a photo of herself shaking hands with [Putin] in her election brochure as evidence of her ‘international stature'” — right up until the war started. Following the onset of hostilities, the handout “disappeared abruptly from view,” the Times added. During her 2017 Moscow visit, Le Pen said Crimea “was never Ukrainian.”

I could go on, but most readers are likely apprised of the history — and I don’t just mean the history of Le Pen’s relationship with Putin. I mean the history of the Le Pen name more broadly.

Suffice to say Sunday’s result removed a tail risk, but coming full circle, I doubt many market participants (e.g., FX traders) went into the weekend truly concerned over the prospect of a Le Pen win. Indeed, Barclays suggested credit markets had become totally complacent headed into the runoff.

The focus now shifts to parliamentary representation. “We expect the results of the first accurate opinion polls on those elections to come out before mid-May,” SocGen wrote Sunday, adding that “if history is any guide, Macron’s party is likely to obtain a majority [although] a divided government can’t be ruled out.”

Le Pen was characteristically defiant. “I fear the next five years will not break with the contempt and the brutal policies of the last five years,” she said, before predicting, unironically, that Macron “will do nothing to repair the divisions in our country.”