- Polls suggest market-friendly outcome in Sunday’s French election but world has become upset-prone
- U.S. existing home sales expected to remain strong
- U.S. Markit PMIs expected to show increases
Polls suggest market-friendly outcome in Sunday’s French election but world has become upset-prone — The initial results from Sunday’s first round of the French presidential elections should be available when the exit polls are released at about 8 pm Paris time (Sunday 2 PM Eastern time). The final results should be clear by about midnight Paris time (6 pm Eastern). No single candidate is likely to get more than 50% of the vote in Sunday’s election because the vote is split among 11 candidates. That means there will almost certainly be a run-off election on Sunday, May 7 between the two winners in Sunday’s first round.
The polling is very close for the top four candidates. Moreover, one-third of voters have recently said they are undecided about how they will vote, which makes the polling data less accurate and makes the outcome less certain. FT poll tracking has support at 24% for independent Macron, 23% for National Front Le Pen, 19% for both Republican Fillon and Communist Melenchon, and 8% for Socialist Hamon.
Ms. Le Pen is almost assured of winning one of the top two spots in Sunday’s first round because she has a core base and her turnout is expected to be strong. Support for Mr. Macron is not considered to be as solid because he started his own party and therefore does not have the support of one of the long-established French political parties. Mr. Fillon is representing the Republican party but he is under the taint of corruption due to charges that he gave his wife and children fictitious government jobs. Mr. Melenchon came out of nowhere several weeks ago and has captured a large amount of support despite his far-left policies.
The polls favor a win by Macron and Le Pen on Sunday, which would send them to a face-off in the second round. Macron in theory should be able to beat Le Pen fairly easily in the second round since the current polling of that hypothetical match-up is 64%-36% in support of Macron, according to FT poll tracking. Meanwhile, a surprise win by Fillon on Sunday, along with Le Pen, would be less favorable than a Macron win because Fillon is favored against Le Pen in the second round by the narrower margin of 57%-43%, giving Le Pen a better chance of a second-round upset.
Global stock markets are likely to fall sharply on Monday if Macron on Sunday is knocked out in the first round by Communist-backed Jean Luc Melenchon because that would set up a second round match-up between the two anti-EU candidates of the far-right Le Pen and the far-left Melenchon, either of which would mean instability for France and the Eurozone.
The current betting odds for the next French president (after the second round) are 61% for Macron, 29% for Le Pen, 13% for Fillon, and 10% for Melenchon, according to PredictIt.org. However, as the Brexit and Trump votes showed, the betting odds are of less value than the polls because bettors sometimes skew their bets heavily towards their preferred outcome. For both Brexit and the U.S. election, the polls were much closer than the betting odds in predicting the outcome of the vote.
For the U.S. vote, the betting odds just before the election favored Ms. Clinton over Mr. Trump by the wide margin of 80%-20%, which turned out to be ridiculously wrong. The national opinion polls favored Ms. Clinton by 3 points, according to FT poll tracking, which actually turned out to be fairly close to Ms. Clinton’s final 2.1 point margin of victory in the popular vote (48.5%-46.4%). However, the polls got the state-by-state vote outcome wrong and Mr. Trump ended up winning in the Electoral College vote.
For Brexit, the betting odds were also very wide at about 75%-25% in favor of Britain remaining in the EU. However, the polls were neck-and-neck near 50%-50% going into the election, which wasn’t that far off from the final result of 51.9% for Leave and 48.1% for Remain.
U.S. existing home sales expected to remain strong — The market is expecting today’s Mar existing home sales report to show an increase of +2.2% to 5.60 million, partially reversing Feb’s -3.7% decline to 5.48 million. Expectations for a +2.2% increase in today’s March existing home sales report are based in part on the large +5.5% increase in the Feb pending home sales report, which leads closed home sales by 1-2 months. The warm weather seen over the winter should be favorable for home sales, although that may steal some sales from spring.
U.S. home sales in February in any case were very strong at 5.48 million units, which was only -3.7% below January’s 10-year high of 5.69 million units. Strong home sales are being driven by strong consumer confidence and underlying demand. However, some obstacles for home sales include very tight supplies and high prices. The supply of existing homes on the market in February of 3.8 months was just slightly above December’s record low of 3.5 months and was well below the long-term average of 7.0 months. The 30-year mortgage rate has fallen by -24 bp to the current level of 4.08% from December’s post-election peak of 4.32%, which is positive for home sales, but is still up by +0.54 bp from the pre-election level.
U.S. Markit PMIs expected to show increases — The market is expecting today’s Apr Markit manufacturing PMI to show a small +0.2 point increase to 53.5, reversing part of March’s -0.9 point decline to 53.3. The consensus is for today’s Apr Markit services PMI to show an increase of +0.6 to 53.4, reversing part of March’s -1.0 to 52.8. Business confidence continues to be elevated since the election, but the hard economic data has not kept up, calling into question whether businesses are being overly optimistic.
