As noted earlier, following Macron"s victory the reaction in key FX crosses and pairs has been very subdued, suggesting today"s outcome was no surprise to traders at least in terms of technical positioning. Another reason why "the news may be getting sold" is that as Deutsche Bank and various other sellsiders suggested, another near-term hurdle looms in just a few weeks time with the French parliamentary elections.
Other immediate deliverables include naming a prime minister, forming a government, passing labor market reform, and negotiating Brexit. Here is a breakdown of what the immediate next steps facing the youngest ever French president are, courtesy of a late Sunday note out of Deutsche Bank.
France: Macron President, what next?
Emmanuel Macron won the second round of the presidential election capturing ~65% of the expressed votes against Le Pen. The turnout was satisfactory at ~75% but lower than previous presidential elections. Also, ~10% of the votes were blank, two to three times the usual share. Ultimately, far-left voters supported Macron more than expected by the latest polls.
This is a disappointing result for the National Front. In 2002, Jean-Marie Le Pen against centre-right candidate Chirac had gathered 18% of the expressed votes in the second round. In 2017, Marine Le Pen gathered 35%. The National Front rise is less impressive than these figures suggest. In 2002, it captured 14% of the electorate once accounting for abstention, and ~23% in 2017.
Macron will now have to name a Prime Minister with parliamentary experience, able to lead the lower-house election campaign and then manage the daily business of parliamentary politics. He mentioned that his PM name and government will be revealed after the inauguration that needs to happen by 14 May.
As we wrote in Focus Europe on Friday 5 May, recent electoral results and polls suggest that Macron"s party could be the main party in the French lower house post 11-18 June elections. An outright majority for his new party "En Marche!" appears numerically possible. If not, a majority could be reached with the participation of moderate centre-left and/or centreright MPs who have already expressed their preparedness to govern with Macron in such a situation. In the coming weeks, Macron will be hoping to convince them to directly join his party, while they may be very reluctant to take the risk.
In terms of reform timetables, Macron aims to pass labour market reforms quickly over the Summer 2017, take more time to pass unemployment reforms at the end of 2017 and take a longer perspective on simplifying the retirement system (see here for details).
Regarding Brexit and the EU, Macron has run on a pro-EU platform and has repeatedly explained his ambition to make France an equal partner to Germany. He will most likely prioritise the relationship with Germany over Brexit. A victory by Macron at the presidential election is unlikely to lead to easier negotiations for the UK.
