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Investors take another look at opinion polls after French vote

By REUTERS

APRIL 25, 2017 13:34

LONDON - Pollsters picked the two candidates to make it into next month's French presidential election run-off, going some way to restoring their reputation in financial markets before other important votes across Europe.

Centrist Emmanuel Macron won Sunday's first round vote with 23.91 percent. Far-right nationalist and anti-euro candidate Marine Le Pen came in second with 21.42 percent, almost exactly as polls predicted.

Markets lost faith in polls after they failed to predict that Britain would vote to leave the European Union and that Donald Trump would become US president.

But the French vote, which followed accurate polling of the Dutch election in March, will go some way to restoring faith in them before the second round of the French vote and other major elections in Britain, Germany and Italy.

"Investors who lost confidence in pollsters after they failed to predict the outcomes of the US elections and Brexit vote are viewing them as credible sources of information again," said Hussein Sayed, chief market strategist at FXTM.

Guided by the polls, the two biggest political events in the Western world last year wrongfooted investors.

With that in mind, they took no chances ahead of the French vote, where the top four candidates were all within about 5 percentage points of each other going into polling day.

The cost of buying protection against large swings in the euro's exchange rate via the options market rose sharply last week, with one-week implied volatility posting its biggest weekly rise on record.

But the polls were spot on so few investors now question leads of over 20 percentage points for Macron over Le Pen in the French runoff.

They also have more faith in forecasts showing UK prime minister Theresa May's ruling Conservative Party will command a substantial lead over the opposition Labour Party ahead of the snap June 8 election there.

Italy must also hold a general election before May next year and the populist Five Star movement is neck and neck in polls with the ruling Democratic Party.

"Markets won't forget what happened with Brexit and Trump. They are still casting a shadow and will stick in peoples' minds," said Teeuwe Mevissen, senior macro strategist at Rabobank.

"It's a case by case situation and very dependent on how polls are performed and how accepted populist parties are. But markets see less tail risk."

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