As the UK heads to the polls, it is political events across the Atlantic and the Channel which are really dominating market discourse.

In France the first round of voting in parliamentary elections suggested president Emmanuel Macron’s gamble of calling a snap poll last month had backfired.

Marine Le Pen’s far-right National Rally won 33.1% of the vote, with a left-wing alliance behind on 28% and the Macron camp behind on 20.76%. This outcome actually prompted some relief, as National Rally did slightly worse than polling implied.

France now enters a fairly complex second round of run-off elections which will determine the make-up of the French parliament. If the far-right or left-wing alliance take office there is concern they could bring in spending increases which put France’s strained public finances under further pressure.

Invesco’s global head of asset allocation research, Paul Jackson, thinks the most likely outcome (60% probability) is some sort of fudge with no-one in overall control. He says: ‘Looking at the reality of the situation, some sort of temporary solution designed to allow a government to pass necessary legislation until further elections (not before 12 months).

‘This could be a technocrat PM (Michel Barnier, for example) or a continuation of the current government (as seen in countries such as Spain, Belgium and the Netherlands). I think this would be the most reassuring outcome for markets, but would just delay the issue.’

Assuming president Macron stays in office until mid-2027, as he has vowed, Jackson says he can see ‘some positive outcomes for French and Eurozone assets’. 

‘However, if French public opinion remains as it is, 2027 could see Marine Le Pen elected as president, accompanied by a far-right government. That would give me pause for thought,’ he adds.

In the US, president Joe Biden’s shaky performance in a debate with Donald Trump on 27 June has prompted speculation the Democrats might pressure him to stand down before November’s vote. Most observers think the net upshot of the debate is a second Trump presidency is more likely.

Consultancy Capital Economics’s deputy chief markets economist Jonas Goltermann notes investors have not reacted too much to this shift but notes that a return to the White House for Trump would likely ‘put upward pressure on the dollar, bond yields, and pose a headwind to equity markets’.

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