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How to play European markets ahead of French election

French President Emmanuel Macron called a snap election after dissolving the country's parliament. According to Interior Minister Gérald Darmanin, the vote could cause civil unrest in the country.

Fed Watch Advisors founder and chief investment officer Ben Emons joins Market Domination to give insight into the European markets ahead of the French election.

"French bonds... these are the more safer assets in the eurozone compared to, say, in Italy or Greece. And because of the ECB's, you know, major influence on these markets with rate cuts already coming through, those bonds look interesting. But French stocks to an extent, too. What has really sold off for the French banks, those are well capitalized institutions now. So that looks really overextended. So I think you could play both French stocks and bonds," Emon tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.


This post was written by Nicholas Jacobino

Video transcript

A consequential French election kicks off over the weekend and the outcome could have big implications for broader European markets.

We're looking at how us investors can navigate the big picture with the Yahoo finance playbook and we're joined by Ben and founder and chief investment officer at Fed Watch Invir.

Good to see you then.

So the set up here is that Amanuel Macron of France has called this snap parliamentary election a really, it was a surprise for pretty much everyone in France, including those in his own party, but it looks like what could happen as a result is that particularly some of the right wing in French politics could gain some ground.

We've already seen a lot of volatility in French assets.

How should investors be, be thinking about this situation?

Yeah, I think uh Julie, it's, it's once again a story about France being in trouble with its uh its its management of his debt.

You know, the, the the European Union Market Union has certain specific rules around deficits and debt.

And these right wing and left wing parties have a very different view about it.

They view that we shouldn't really be following those rules and since they have so much in the polls and, and that has broken up Macron and he called the snap elections.

Investors suddenly are aware of like, wait a minute, there's a, again, this, this euro risk now centered in France and people are maybe looking at this too as a sense of like what happened with the UK years ago the Brexit that this becomes this idea of frexit.

Now, I think what really happened though Julie is that there was an initial reaction in the in the C AC 40 index quite sharply and that sort of recovers, I think to play as investors that this election will be really about a new coalition in the in parliament.

And it then depends a bit on how the coalition formed.

What the ultimate outcome will be for investors of will France really tilt to a side where it doesn't follow the rules or it's still some compromise looks like from the price section, some compromise.

So it looks too that the initial reaction quite sharp, it was made, I think some of the European tax stocks as well as small caps, relatively attractive to, to us small caps and tax stocks.

So you, so you're suggesting Ben um despite all these headlines that what's happening in France here, this could be for investors an opportunity here.

I think it is because, you know, oftentimes when you get these geopolitical tensions around a certain subject like this case, uh uh you know, political issue, it seems that the populists don't really get much anywhere.


They, they may get reelect or get elected, but they can't form a government or trouble to form a government and therefore not all the plans materialize.

And so as you're getting this adverse reaction in the stock market seems to have overshot to the downside because the, the new future government cannot do much and then therefore it becomes an opportunity.

So I think this is an opportunity to take risk.

It is an opportunity.

How would you do that?

Then would you get into equities in France or would you be looking at debt?

What's, what's the best way?

I, I think both Julie because, um, you know, French bonds, if you think of it that, you know, these are the more safer assets in, in the Eurozone compared to say in Italy or, or, or Greece and because of the E CBS, you know, major influence on these markets with rate cuts already coming through those bonds look interesting, but French stocks to an extent too, I mean, what has really sold off are the French banks?

Those are well capitalized institutions now.

So it looks really overextended.

So I think you could play both French stocks and bonds going into the election.

What about Ben?

I, if you have thoughts as well, you know, UK elections um set for early July.

Um Any thoughts there, Ben, how do you think about that as, as an investor, as a strategist?

Yeah, I think those elections are similar, although different issues happening there but you know, in the UK, it's been all about inflation.

That's like we have our election here will be much centered around inflation.

And I think there is a different story.

It's more about if, if we're getting a different government, it probably would more be about will this government actually tackle austerity?

Which the UK tends to be more focused on bringing the deficit down?

But what will happen to inflation?

That's not clear if anything, if there's going to be a lot of confusion about what fiscal policy will do, inflation picture may not necessarily change.

And yet the Bank of England is sitting there trying to cut rates at some point.

So I think UK is a little bit in flux here.

Currently, I don't think there's a clear opportunity there compared to the situation in France, which looks much more of an overreaction to these, these geopolitical headlines.

You know, it's interesting then because in general, we have seen some of the right word leaning parties gain ground in Continental Europe, uh in particular outside of France.

Are there other areas where you think things have been sort of mispriced?

Do you think there are opportunities?

Well, we have a very subdued volatility environment, uh Judy and so it has made some of the opportunities a bit limited.

I think that what happened over the last sort, maybe week, two week in our own market in the US, you get suddenly a stock like NVIDIA really drawing down by 50% and it pops 7% higher today.

It's sort of like you reach short term opportunities.

Um I think we have to wait and see what happens with our election in particular.

What will be the dislocation coming from that, the presidential debate that comes up now, maybe the first catalyst for markets start thinking about like who really has the best shot here if it's going to be tariffs and tax cuts or it's gonna be again, more fiscal spending.

So I think in the next two days we're getting maybe this mis pricing more clear here in terms of in the US market, for example, more opportunity to see if there's opportunity to take risk.