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Le Pen’s poll surge rattles French bonds and bank stocks

French bank shares fell sharply and bond spreads widened on Tuesday as investors priced in stronger presidential election poll numbers for Marine Le Pen, the far-right challenger.

The risk of a Le Pen victory has suddenly come into sharper focus ahead of the first round of voting on Sunday as opinion polls showed her gaining ground on President Emmanuel Macron, although he is still favoured to win a run-off on April 24.

Shares in BNP Paribas, Société Générale and Crédit Agricole fell by 4-6 per cent in afternoon trading, while bonds were buffeted by the heightened political risks. The CAC 40 blue-chip index fell about 1.3 per cent, underperforming the largely flat Stoxx Europe 600 index.

The spread between France’s 10-year borrowing costs and those of Germany — a market gauge of the riskiness of holding French debt — widened to 0.53 percentage points on Tuesday from 0.41 percentage points last Thursday, the biggest gap since the early stages of the Covid pandemic in April 2020.

“These latest polls have worried the market,” said Peter Schaffrik, a global macro strategist at RBC Capital Markets. “It’s not just the threat of a lack of continuity. Le Pen is a very different proposition. People are fearing that after a show of unity recently this could open up a new rift inside the EU.”

Le Pen’s election manifesto no longer includes dropping the euro, as it did when she last faced off against Macron in 2017. But she remains sceptical about free trade and open borders.

Jérôme Legras, head of research at Axios Alternative Investments, noted concern that the EU’s co-ordinated response to Russia’s invasion of Ukraine could fall apart, and added that banks tended to be a prime target for traders looking to bet against the French economy.

“There are expectations for a harmonised European response to try and blunt the economic shock . . . and there’s a fear that with Le Pen you wouldn’t have the same level of co-ordination,” Legras said. “You wouldn’t necessarily have that macro buffer that’s important for banks’ profitability.”

The Ukraine war and Macron’s strong poll lead had until now overshadowed the campaign. Investors had been far more on edge ahead of the 2017 election since it came after other upsets such as Britain voting to leave the EU and Donald Trump’s US win.

Le Pen’s platform focuses largely on the signature issues of the far-right movement that her father founded in the 1970s: including restricting immigration and boosting funds for police and prisons.

On the economic front, she has repositioned her National Rally party to focus on working-class people worried about the cost of living. The rich would probably be hit under her plan for a wealth tax.

Shares in Vinci and Eiffage, both French infrastructure companies, dropped by almost 5 per cent; they would be affected by Le Pen’s promise to renationalise the national highway system.

“We’ve suddenly been poring over Le Pen’s programme on fiscal matters,” said one banker in Paris, adding that few people in financial circles had bet on anything other than a Macron win for weeks. This still remained the central case, the banker added, but the possibility of a Le Pen victory had begun to focus minds.

“Economically it could be a disaster,” the banker said.

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