This week has finally cleared the immediate future of the European Union after the victory in the French elections of the young candidate by the centrist party En Marche! Emmanuel Macron in front of his rival the far-right National Front Marine Le Pen, which he threatened to do if he reached the Elysée “a second Brexit” that would completely weaken the aspirations to consolidate a common European project.
Although these elections can yield many readings, focusing on the problems that existed in the European Union after the unexpected departure from the United Kingdom, the result is satisfactory from the point of view of the general interests of the Member States of the Economic Community European
First political and economic impact in France
If we analyze the results of these elections in a political key, we can see that the voters have decided to continue and believe in the European project and reject the racist, xenophobic, autarchic and anti-Europeanist ideologies defended by Le Pen’s political program. Although we would be wrong if we forgot that about a third of French voters advocated a system change because of the accumulation of excess in recent years. This has caused that the traditional political parties have suffered a severe punishment, remember that the Socialist Party of Hamon has obtained an insignificant 6% in the first round, and therefore the liberal policies of Macron will have to correct all the excesses and errors made by the last governments to avoid a turn to the extreme right in the next elections.
The following graph shows the distribution of the vote according to the provinces, confirming that in the large urban population’s Macron was the most voted, with Le Pen winning only in a peripheral province in the north.
In the French countryside, the economic effects immediately after the defeat of Le Pen could not have been more positive. The French risk premium has fallen to values close to 35 basis points, one of its lowest levels in the year, and the 10-year French bond has also decreased its value close to 0.10% since the beginning of the elections with the celebration of the first round on April 23. Equities, on the other hand, have shot up; the CAC 40, the stock index equivalent to the Spanish IBEX 35, has reached its highest historical value in the last nine years, standing at over 5,300 points.
How do these elections influence Spain as a community partner?
As a neighboring country with important import and export trade relations with France and as a member of the European Union, we are one of the States with the greatest impact and influence due to the results of the Gallic elections.
Analyzing the Spanish market the days after the elections, we verified that the risk premium fell to 115 basis points and the interest required to the Spanish 10-year bond was around 1.6% (in the graph below it can be observed ). Following the trends of the French country’s stock exchange, the IBEX 35 also outperformed by stabilizing around 11,000 points.
Regarding fixed income, the confirmation of the permanence of France in the European Union has confirmed the negative interest rates for Bills of the Treasury at six and twelve months (see the attached graph to check the different returns of the fixed income in Spain). In fact, in the closest auction that the Spanish Treasury has issued after the second round of the French elections, they have been placed thanks to the European Central Bank 4,676 million euros in six-month bills with -0.398% and twelve-month bills with -0.327 %.
The first conclusion that emerges from these results is that forecasts that predicted a stagnation of fixed income in negative values or close to 0% are confirmed and will remain valid at least until the end of 2018.
As a second conclusion, we can affirm that this defeat of the National Front confirms and supports the European economic project, which in the markets has translated into a lower aversion to risk.
Finally, this decrease in risk aversion on the part of the markets underscores the European Union’s tenure towards new expansive policies that allow States to place debt at a very low cost and penalize investments on deposits and short-term fixed income. , causing a more significant impact of the doubt in the medium and long-term. For this same reason, from the investor’s point of view, it is time to look for alternatives.
Where to find a substitute product for fixed income?
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