Heads up: French prime minister Bayrou set to face confidence vote later

[Ben Graham]

The confidence vote is set to take place later this afternoon with the results expected with the results likely to come in around 1500 GMT or after that. Incumbent French prime minister Bayrou is set to be ousted but are markets underestimating the political turmoil that could follow? Well, let's take a look.

For the most part, the euro currency has shrugged off the risks associated with the situation in the region's second largest economy. So, that's one clear spot to look at in terms of potential negative reactions from markets. That at least is what Societe Generale is arguing.

The firm outlines that the most probable outcomes are either Bayrou loses the vote and a caretaker prime minister is appointed or that Bayrou loses and the National Assembly is dissolved. And that will lead to an election with the likeliest result being another hung parliament.

They outline that if the general election leads to a hung parliament and/or a National Rally win, that would cause "significant political and fiscal risks". In turn, that will be the most negative outcome for the euro.

But in the case of any other outcome (even in the confidence vote), any positives will be limited and could be slightly negative at the balance. Societe Generale is noting that the market is being complacent right now and that the probability-weighted outcome for EUR/USD implies a target of 1.1570

This article was written by Justin Low at investinglive.com.