After Macron’s surprise call for an election, French markets experienced high volatility. With the possibility of the National Rally taking a majority in the assembly, French bonds faced a huge selloff, and stocks fell. RN won the first round as expected, taking more than 30% of the votes. However, after the election, RN’s chance of getting a majority is getting slimmer. According to Ipsos polls, the National Rally is expected to gain 230 to 280 seats, falling short of the 289 seats required for a majority. 

(France – Germany 2 Year Yield Spread) 

This result cooled off the markets a bit. The French-German 2-year yield spread tightened nearly half of the June move by falling 88 basis points. The reason for the sharp change in optimism was not only the polls but the drop offs as well. After the first round, more than 200 candidates dropped out of the race to avoid splitting the vote, which reduced RN’s chances further. So, the most likely scenario for now is a more contested assembly that could slow the pace of any reforms. Either way, France will come out of these elections with a weaker political landscape that could weaken the EU as well. 

(CAC 40 Mini Weekly Chart) 

With the sharp selloff, the CAC 40 index fell to a two-year long trendline. So far, the trendline has provided sufficient support to hold the declines. Now, with the probability of a majority reduced, the index is trying to regain some lost ground. For that to happen, recovering and holding the 7700 level will be key. In that case, a run towards 7900 might begin. As for downward moves, the trendline is still a major support and is currently near 7500.