Geopolitical risks are back, stalking markets. North Korea is the main flashpoint and the stand-off between Pyongyang and Washington will continue to unnerve investors. The exports data for many countries in Asia have been strong, but simmering tensions have hit equities.
Mélenchon constitutes another significant tail risk for markets. Until recently, the focus has been on Emmanuel Macron. Opinion polls suggest he will trounce Marine Le Pen in the second round. However, there is an outside chance that the centrist will not make the run-off. France would then polarise between extreme left and right, destabilising the EU.
If Mr Macron wins, France is well placed to enjoy its nascent economic recovery. Some of the initiatives put in place under President Hollande to foster small business are working. Mr Macron can build on these first steps. Nonetheless, the strength of support for Mr Mélenchon has provided a reminder of the potential street opposition, which has so often derailed more serious reform.
Summary
- Surge in support for Mr Mélenchon unnerving, threat of extreme left/right second round is real
- Should Macron win the election, France is well placed to enjoy nascent recovery
- Result is huge for Italy too: depending on winner, debate over euro will shift
