France’s second-round legislative election produced an unexpected result, with the far right Rassemblement National pushed into third place, UBS macro analyst Paul Donovan notes.

Political outcomes are getting more interesting  

“An unexpected result highlights that politics is becoming more important to markets, but opinion polls are less reliable as a guide to outcomes. Polarization means financial institutions try to strike a neutral tone—'opinion polls suggest’ rather than ‘we believe that’, but if polls are less reliable market mispricing is more common.”

“For France, there is a prospect of either a minority government or a probably unstable coalition. The largest bloc is the left-wing Nouveau Front Populaire, and on some costings their unfunded fiscal pledges amounted to two Trusses (4% of GDP). It would be difficult to be so radical given these political circumstances.”

“Elsewhere, Japanese nominal wage gains were the best since the 1990s, but fell in real terms. Japanese consumer data has also tended to disappoint a little recently. US consumer credit data is due, and has tended to be lower than expected this year. Germany's May imports and exports fell, and by more than consensus expectations.”