Polls suggest that National Front leader Marine Le Pen will make it to France’s run-off vote on May 7, giving her a shot at claiming the presidency on anti-euro, EU-skeptic ticket. She shared a stage last weekend with Frauke Petry of Alternative for Germany and Geert Wilders, whose anti-Islam platform has helped propel his Freedom Party to within reach of winning the March 15 Dutch election.

Europe’s anti-establishment forces are drawing inspiration from Donald Trump’s surprise elevation to the U.S. presidency and unexpected victory of Brexit supporters in last year’s referendum. Another common strand is an anti-immigration stance that has flourished during the worst refugee crisis since World War II, with more than one million people fleeing war and oppression in Syria, Afghanistan and elsewhere having sought asylum in Germany alone.

Gabriel, who is poised to become German foreign minister in a cabinet reshuffle allied to the Sept. 24 election, pointed to France’s two-round ballot as the key moment that will shape Europe’s destiny. While no recent poll has shown Le Pen coming close to winning the second round, Brexit and Trump’s victory have made political analysts and investors reluctant to rule anything out.

“If Europe’s enemies, after Brexit last year, manage once again in France or in the Netherlands to be successful, then the threat to us is the collapse of the greatest civilization project of the 20th century, the European Union,” Gabriel said in a speech to lower-house lawmakers in Berlin on Thursday.

Eoin Treacy's view

No one has much faith in polls anymore because people lie about their intentions and those that respond to polls are often not representative of the swing voters that shape results. Lurches to the right in the UK and USA represent dissatisfaction with the status quo. France’s generous social programs have helped nullify populist uprisings until now, but an unemployment rate stuck at 10.2% and youth unemployment of 24% are intransigent problems that the current political apparatus does not appear to have a solution for.

French 10-year OATS spread over Bunds may now be in the process of completing a first step above the two-year base. That suggests traders are willing to bet LePen has at least a fighting chance of becoming president and implementing her fiscal stimulus plans. More importantly ECB intervention will be required to check widening spreads. If 2011 is any guide they will wait for the trend to become better defined before acting in order to have the greatest impact on the market. 

The CAC Index rallied in December to break out of a yearlong range and is now consolidating that move. A sustained move below the trend mean, currently near 4600, would be required to question medium-term scope for additional high to lateral ranging. 

BNP Paribas, France’s largest bank, is testing the upper side of an 8-year range and while there is scope for some further consolidation in this area, a sustained move below the trend mean would be required to question medium-term recovery potential.