The topic of this week has been the French elections. Everyone is watching the French elections results as if they will change the world, in an emotional rather than rational way. Let’s look at some examples in financial media to illustrate what we are saying.

This MoneyControl article stresses the importance of the French election on the economy and markets: “Global investors and markets are all focused on the crucial French elections – the voters on Sunday will heading to the polls to choose their next president. The election of the president is very crucial for the Eurozone economy overall.” (our emphasis)

CNBC agrees that the French election has a significant impact on markets: “Sunday will see French voters cast their ballots in the first round of their presidential election. The race is seen as too close to call, and could have a wide-ranging impact depending on the result.” (our emphasis)

Financial Times, however, looks at it in a more actionnable way, which is a big difference compared to the ‘vague’ statements on many other outlets. This is how FT forecasts a potential outcome of the French election on markets: “Should we see this outcome, it would be positive for markets, with the euro rallying and the spread on French over German bonds likely to fall.”

The way to look at markets in the context of the French election

The way InvestingHaven looks at markets is very simple: where exactly are key markets trading before the outcome, and how far away are they from secular trend changes. That is the key question to ask, and look answers on.

Let’s revise leading assets in Europe: Yields in Germany, the Euro, French stocks, European stocks. 4 charts are included in this article.

The highlights of these 4 charts for different election outcomes: In case of not too concerning results of the French election, French stocks will see a major breakout (very, very bullish), the Euro will rise slightly, and yields will breakout to break the very long term downtrend (major news). In case of a concerning outcome of the French election, stocks will simply correct with no visible impact short to medium term, the Euro will correct (close to breakdown), and yields will simply go lower (with no significant impact).

10-year Yields in Germany, the leading market, are surprisingly close to a breakout from a secular downtrend. This implies that a concerning outcome will push yields lower, but not to a point of catastrophe (on the contrary even). However, a less concerning outcome would push yields higher, into a secular breakout.

The Euro sits in a sideways range, between 105 and 115 points. It is quite close to a breakdown level. So in case of a really concerning outcome (from a European Union point of view), the Euro is potentially going to break down, which would favor the dollar primarily.

European stocks are trading in the middle of a range, not near major breakout or breakdown levels. Really concerning French election results will push this index to the lower area of the trading range, but less concerning results could push European stocks close to a breakout.

Last but not least, French stocks are very close to a major breakout point. That is definitely surprising, and it suggests that, in case there is no concerning outcome of the election, French stocks will do a major breakout. In case the outcome is concerning for France, stocks in France will correct but they are nowhere near breakdown levels.