French political turmoil causes market jitters after defeat of Marine Le Pen’s far-Right National Rally

French markets were gripped by volatile trading yesterday after the defeat of Marine Le Pen’s far-Right National Rally (RN).

The Cac 40 – the main benchmark on the stock market in Paris – fell sharply in early trading before rallying.

But the gains fizzled out as the session wore on as the reality of a hung parliament and months more of uncertainty took its toll.It closed down 0.6 per cent.

The Left-wing New Popular Front (NPF) emerged as the largest party and President Emmanuel Macron’s Ensemble second. 

The RN – which had led in the first round of voting – was pushed into third. But no party achieved a majority.

Celebrations: France’s Left-wing New Popular Front emerged as the largest party and President Emmanuel Macron’s Ensemble second

Yields on ten-year French bonds – a measure of the cost of government borrowing – rose sharply in early trading before dropping to their lowest level since June 26. 

And the euro dropped against the pound and the dollar before clawing back some of the losses.

Deutsche Bank strategist Jim Reid said: ‘The NPF have the most fiscally aggressive programme in terms of both spending and taxation and the market will be suspicious that the prospect of them being in government now or later will bring higher deficits.

‘However, trying to build a government that has any kind of stability looks a very high bar. Political paralysis for the next 12 months seems the most likely outcome,’ he said.

Analysts fear that unpopular reforms by Macron designed to tackle France’s staggering debt pile – which stands at more than 110 per cent of GDP – will be jeopardised by the chaos.

But the lack of a majority either for the leftists or the far-Right lessens the risk that they might implement policies that could result in a further deterioration of public finances.

Experts at Japanese bank Nomura said: ‘These election results are unlikely to have a long-lasting negative impact, given there will essentially be no significant change in the political situation in the National Assembly.’

The refusal of the far-Left leader Jean-Luc Melenchon to work with Macron could mean a minority government of centrist and centre-left parties, the bank’s analysts said.

Holger Schmieding, chief economist at Berenberg, said: ‘That the Left has become the strongest group in parliament raises serious concerns. France is heading for a period of political uncertainty and – most likely – for fiscal problems.’

The Bank of England has warned that uncertainty related to French and other global elections could create risks to UK financial stability.