Transcript: First round victory for French far-right

This is an audio transcript of the FT News Briefing podcast episode: ‘First round victory for French far-right’

Jessica Smith
Good morning from the Financial Times. Today is Monday, July 1st and this is your FT News Briefing.

France’s President Emmanuel Macron took a gamble on a snap election, thinking he could help his party. 

Leila Abboud
Macron’s decision to call the snap elections will go down as probably the worst one he has made in his entire political career. 

Jessica Smith
The FT’s Leila Abboud will tell us about yesterday’s big victory for France’s far right. And it’s been a pretty victorious year so far for US financial markets. We’ll take stock at this mid-year point. I’m Jess Smith and here’s the news you need to start your day. 

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News clip
(Marine Le Pen speaking in French)

Jessica Smith
That’s France’s far-right politician Marine Le Pen celebrating her party’s victory in yesterday’s first round of parliamentary elections. Her party’s win was not a total surprise. French voters have shifted to the right in recent years, and polls had predicted a win for her party, Rassemblement National or RN. But voters turned out in record numbers, and Le Pen’s party won more than a third of the vote. I’m joined now by our Paris bureau chief, Leila Abboud. Hi, Leila. 

Leila Abboud
Hi. 

Jessica Smith
Leila, there’s still a second round of elections next week. But what does this first round tell us? 

Leila Abboud
So there has been a sea change in French politics that we’ll have to see how big of a sea change it is next week. But I wouldn’t sort of forget that it is surprising to see the RN at these levels. The vote indicates something that we’ve seen for, and polling probably for the past 10 or 15 years, is that French society is moving to the right on many issues like immigration, especially crime and security. There is sort of a desire on the part of a chunk of the electorate for stricter controls and a more sort of authoritarian or top-down approach to security. But I wouldn’t isolate it to just France. There’s a sort of rise of populist and, in some cases, far-right movements that’s happening across Europe. And, you know, even in the US, you sort of also see a comeback of populist forces, and with Donald Trump. 

Jessica Smith
Leila, what would political dominance of the far right in France mean for the broader European Union? I mean, France is a core member of the bloc. 

Leila Abboud
We really have to wait for the results of the vote, to be honest, because things will look very different if it’s a sort of hung parliament with three blocs and the RN is not at 289. Because if they aren’t at 89, they can’t call all the shots. If they end up with 289, then all bets are off. You’re gonna have a very sort of unstable power-sharing government, which in France is called a cohabitation. And the RN is a Eurosceptic party. So they don’t want France to exit the European Union, but they kind of want to hollow out many aspects of EU law and regulation in such a way that it would set up a collision with Brussels. The head of their party is a 28-year-old named Jordan Bardella who will be prime minister if they win an outright majority. And he told me in an interview this week that he didn’t, quote, want to go to war with Brussels, closed quote. But a lot of his ideas and policies would effectively amount to declaring war in Brussels. 

Jessica Smith
Leila, this young politician Bardella sounds like someone we should be paying a lot more attention to. In your interview, is there anything else that struck you? What else can you tell us about him? 

Leila Abboud
I mean, I would have to just say that, you know, was when I interviewed Jordan Bardella this week, as he’s the head of the RN party, has never done anything but be in politics since he was 16. And he looked me straight in the eyes and basically said, you know, I believe we can win, and I believe I’ll be sitting in the premier’s office in a week’s time. And on the one hand, politicians always sort of, you know, puff up their chances and all that. But, you know, so far it’s not far off. And that would be sort of really quite striking, unprecedented thing in French modern history. 

Jessica Smith
Leila, how are financial markets responding to all this political upheaval? 

Leila Abboud
We’ve already seen a sell-off in French equities since the snap election was called, which is a reflection of investor, sort of, dislike for political uncertainty in general, and also kind of an increase in the spread between the French bonds and German bonds. And that’s just a reflection of kind of the borrowing capacity and general sort of health of those two countries. Usually there’s a spread which is sort of predictable. That spread has really, really risen a lot in the past two weeks. I’ll be really curious to see what the markets do when they open today, because there’s a lot of things in these results that investors probably will be worried about. 

Jessica Smith
Leila, this whole election is a snap election that French President Emmanuel Macron himself called for in early June, thinking it would give him an advantage. Do you think he regrets the decision? 

Leila Abboud
I think that Macron’s decision to call these snap elections will go down as probably the worst one he has made in his entire political career. There’s really no ifs or buts about it. There’s no way to justify it. There’s no way to explain it away. He didn’t have to do it. He did it because he thought he could gain political advantage of it, and the exact opposite has happened. And he will potentially have neutered the remaining three years of his presidency and pave the way for the far right to succeed him. 

Jessica Smith
Leila Abboud is the FT’s Paris bureau chief. Thanks, Leila. 

Leila Abboud
Thanks. 

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Jessica Smith
In the US, investors are bubbling with optimism, and they’re betting that stocks will continue to rise. Our US markets editor, Jen Hughes, has this take on financial markets performance in the first half of 2024. 

Jennifer Hughes
I’d file it under better than expected. I mean, the S&P 500, you know, the index we follow the most, that’s up about 15-ish per cent so far this year. Early this year we were thinking about six rate cuts. And that means the economy is gonna be slowing rapidly. That hasn’t happened. So there’s been a bit of a relief rally and this kind of expectation for better growth. And that’s what’s really driving the market. The other way of looking at this is that we have had some key stocks completely outperform. So we talk about the S&P 500 being up 15 per cent. Nvidia is up like 150 per cent. That’s the AI-focused chipmaker. So without the gains of stocks like Nvidia and a couple of other big stocks like Apple and Microsoft, the index wouldn’t have done so well even had the economy done even better than it had. 

Jessica Smith
But that makes the stock market seem not so hot. I mean, what happens if stocks like Nvidia and others that have been driving the indices, what happens if they start to fall? 

Jennifer Hughes
That’s the big question for investors right now. People are discussing different ways you could diversify and at least hedge the risk if something happens to these really, really dominant stocks. People’s answers to this are very, very different. If you think we’re going to see more rate cuts, you might think that’s the time for small caps, a very much overlooked sector for the last while. I’ve even had people suggest to me the bank stocks are the future. And after 15 years of those being in the doghouse, that’s a pretty bold claim. 

Jessica Smith
Jen, quickly moving to bonds, how are bond markets doing at this mid-year point? 

Jennifer Hughes
So the bond market, for treasuries in particular, it’s all about the Fed. So the fact we’ve gone from thinking maybe six quarter-point rate cuts to thinking, ooh, possibly two by year end, means that yields have drifted higher. If you hold a mixed portfolio of bonds, you’re probably flat for the year to date, which could be worse but isn’t great. 

Jessica Smith
Jen Hughes is the FT’s US markets editor. Thanks, Jen. 

Jennifer Hughes
Thank you. 

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Jessica Smith
London is struggling to maintain its appeal as a global financial centre. So British officials are trying to make the city more attractive. One way is to allow for bigger banker bonuses. Last year, the UK scrapped its limit on banker bonuses, and big Wall Street banks operating in the city rushed to lift their pay caps. First Goldman Sachs and JPMorgan, and now Morgan Stanley. European banks are frustrated, though. They complain that European Union rules still limit how much they can pay their London employees, and that makes it harder for them to compete for top talent.

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You can read more on all these stories for free when you click on the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.