France's presidential election is a major test for euro zone unity, and the first round Sunday could bring on intense market volatility, depending on which candidates make it to the final leg of the race.
French stocks closed down 1.6 percent Tuesday, after recovering from the worst intraday selloff since the U.K. voted to leave the European Union last June. Investors globally have been hedging ahead of the vote by piling into safe haven assets like U.S. Treasurys and gold, and buying yen against the euro.
The big fear is that far-right National Front candidate Marine Le Pen will win, since she has run on a platform to divorce France from the euro — an action that could threaten the future of the entire euro zone. As it stands now, there is a good chance Le Pen will emerge from the first round pitted against one of three candidates: far-left candidate Jean-Luc Melenchon, conservative Francois Fillon and centrist Emmanuel Macron, a former economy minister.
The candidate favored by markets is Macron, who is expected to beat Le Pen in the final vote. "If it appears Macron is in the race, all of this goes away for the near term," said Brenner.
The disruptive candidate not named 'Le Pen'
However, Lichfield said Melenchon also stands a chance to win. Like Le Pen, he would be considered a disruptive candidate. A fan of Venezuela's Hugo Chavez, he would like to tax individuals who earn 400,000 euros ($430,000) or more at a tax rate of 100 percent. He also would like to renegotiate France's relationship with the European Union, and if it fails, he would seek to leave the EU.
There is a parliamentary election in June, and it in fact could be the more important election. Le Pen's far-right National Front isn't seen making much in the way of inroads.
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