Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

Will the French election result lead to more uncertainty for the CAC 40?

​​​What is the state of play, when will the results be out, what impact will the election result have on the CAC 40?

Stock Market Source: Adobe Images

​​​Impact of the French legislative elections on the CAC 40 and second round polling

​The recent first round of the French parliamentary elections wiped off all of the CAC 40’s near 10% January to May gains. The worst-case scenario of Marine Le Pen's far-right National Rally (NR) party securing an absolute majority in the National Assembly now appears avoidable, leading to a near 3% gain in the CAC 40 index over the past few days. However, the downside is continued political gridlock that prevents France from addressing its high budget deficit and halts President Emmanuel Macron’s pro-business reforms.

​In the first round of the French legislative elections, held on June 30, out of 501 ministers of parliament (MPs), 76 MPs were elected including 39 for the National Rally (RN) and its allies, 32 for the left-wing New Popular Front (NFP) and 2 for President Emmanuel Macron’s Together coalition. This leaves 352 constituencies to vote by 8pm local time (7pm BST) on Sunday July 7, at which point nationwide projections will be published by pollsters based on a partial vote count. The poll results tend to be fairly reliable, but official results will gradually be announced throughout the evening and are likely to be tallied up by the end of the night.

​Further turmoil for the CAC 40 ahead?

​The political turmoil means the hangover for French markets could drag on for months. Since Macron called a snap election in June, the CAC 40 index has been the worst performing major European index. At the height of the selloff, France’s 10-year bond yield spread over Germany’s soared to levels not seen since the sovereign debt crisis.

​The market is still very cautious and concerned about a hung parliament that could become a worry over the medium term and lead to a far-right French president being eventually elected in 2027 when Macron’s two consecutive terms in office are up.

​While French election stress has eased somewhat, volatility remains elevated. A gauge tracking short-term volatility on the CAC 40 is still markedly higher than a similar measure for Germany’s DAX 40. One-month implied volatility on the CAC 40 has only recovered about half of the surge seen after the 9 June snap election announcement.

​The CAC 40 also remains around 3% below pre-9 June levels. The premium investors demand to hold French bonds over German ones has fallen from highs above 80 basis points, but remains well above early June’s 50 basis points.

​What is the option market saying?

​Still, options markets suggest Sunday’s run-off vote should spark smaller stock moves than last weekend’s first round. JPMorgan Chase predicts a 1.9% one-day move in either direction for the CAC 40, compared to 2.9% previously.

​What about the CAC 40’s valuation?

​The past month has also removed the valuation premium awarded to French equities. The CAC 40’s relative valuation to Germany’s DAX is now near the lowest since before last year’s US banking crisis. Of note is also that at a forward price-to-earnings ratio of almost 14, the MSCI France index trades in line with its pan-European counterpart.

​For investors willing to stomach short-term uncertainty, French stocks may present an opportunity, though. Companies with strong earnings outlooks look more attractive after the recent sell-off. Also, French firms generate over 60% of revenue abroad, limiting domestic political risk.

​What about the French debt market?

​On the fixed income side, bond investors seem poised to impose higher borrowing costs on France for years. This reflects not only political instability, but also the country’s 5.5% budget deficit and debt pile set to hit 112% of GDP by 2024, according to IMF projections.

​Ongoing deficit and debt concerns mean the market is going to demand a higher risk premium on French debt until the fiscal situation is addressed, something which might be difficult to achieve while the left-wing alliance and centrist political parties form an uneasy coalition, the first in France’s five republics.

​To buy or not to buy the CAC 40?

​Some analysts argue investors should avoid overreacting to headlines and maintain exposure across French equities and bonds as underlying fundamentals of the French economy remain strong.

​Ultimately, while risks are tilted to the downside, markets have already priced in much of the current uncertainty. Further major selloffs seem unlikely without additional negative catalysts beyond more political posturing.

​For now, investors may need to strap in for weeks of volatility until the economic impacts of a new French government become more clear. But more panic selling out of French assets due to election uncertainty could preclude participation in any rebound once the political storm passes, as it usually tends to do.

​Technical analysis on the CAC 40

​The front month CAC 40 futures contract managed to stabilize above its mid-June low at 7,460 when it dipped to 7,468 last Friday before rising all the way to its 24 June high at 7,744 which is key for the medium-term trend.

​CAC 40 daily candlestick chart

CAC 40 daily candlestick chart Source: TradingView.com
CAC 40 daily candlestick chart Source: TradingView.com

​A rise and daily chart close above the 7,744 late June high early next week would confirm a double bottom chart formation and put the early to late May lows at 7,89-to-7,911 on the map, as well as the 55-day simple moving average (SMA) at 7,912 and the psychological 8,000 mark.

​En route lies the May-to-July downtrend line at 7,796 which needs to be breached first.

​Only a fall through the 7,460 June low would likely push the January low at 7,284 to the fore and perhaps even lead to the 7,000 region being revisited.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Take a position on indices

Deal on the world’s major stock indices today.

  • Trade the lowest Wall Street spreads on the market
  • 1-point spread on the FTSE 100 and Germany 40
  • The only provider to offer 24-hour pricing

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Tuesday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.