French Election Fear Soars: Equity, Credit, FX Hedges Panic Bid

Tyler Durden's picture

With little more than two weeks to go before the first round of French elections, expectations for sizable fluctuations in European markets are growing.

As Bloomberg reports, the VStoxx Index, which measures volatility bets based on options on the Euro Stoxx 50 Index, has rebounded from suppressed levels and is heading for a third consecutive weekly advance.

That’s its longest rising streak since before the U.K. referendum on European Union membership last year.

Furthermore, as the French election looms, investors are increasing bets on the nation’s stock-benchmark gauge. The number of options on the CAC 40 Index has surged to its highest level since 2011, while remaining stable on the regional Euro Stoxx 50 Index.

Since last month’s expiration, call open interest rose 26 percent, outpacing the 22 percent increase in puts outstanding.

But it's not just equity markets that are anxious, FX markets are in freakout mode as traders panic bid hedges. As Bloomberg details, pessimism on the euro has jumped to the highest level since the Brexit referendum as investors hedge the risk of Marine Le Pen becoming France’s president, even as polls suggest the far-right politician will lose the second round of voting on May 7 to independent candidate Emmanuel Macron.

The cost of one-month options to buy the common currency against the yen plunged Thursday, relative to contracts for selling, to the lowest level since June.

The so-called risk-reversal rate, a gauge of market positioning and sentiment, has already fallen much lower than in May 2016 when the gauge first captured Brexit risks, suggesting traders are more cautious this time around.

Finally, sovereign credit markets show a notably elevated risk of French 'risk' over Germany...

With so many hedges on in such size, one wonders just what event the 'news' will actually create?

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CorporateCongress's picture

It ain't panic until bankers hit the pavement, you know, after stepping of the 50th floor.

BlueHorseShoeLovesDT's picture

And the S&P Vix plunges

unrulian's picture

nothing like the pitter patter of bankers hitting the sidewalk on a warm April mornig to warm the cockles of my heart

silverer's picture

Poor leadership got you there. You voted for it. So dumb voters committed national suicide, one election at a time.

Sudden Debt's picture

Oh She'll win for sure.

Whatever the polls say, she's way way way in the lead

hairball48's picture

I hope Le Pen wins. She's a total whack job, but I hope she wins.

That will really get the Euro Nannies hopping mad

Hongcha's picture

Sudden Debt, you have a better vantage point there in Belgium but I like a 32% lead.  I'll bet Eur 100 that Macron wins.

Internet-is-Beast's picture

Le Pen is a great debator. Whenever she is on TV, the presenters' only tactic is to interrupt her and prevent her from speaking.

BarkingCat's picture

Le Pen is far right? Since when is a socialist a far right person?

So now simply being for one's own people and culture is being far right??

She is a nationalist socialist.

All the Soviet Union satellite states were for preserving their own people and culture.

Were those communists also far right???


What the hell has happened to this world??

wesson's picture

guys, our next president is the one that is not even mentionned here. It's Jean-Luc Melenchon


* Double his score since the last 2 month (19%)

* The only one capable of doing meetings with 100K+ people listening

* Preferred politician in France

* strictly no judicial or corruption issue

* All the youth with him

* Declared winner of all TV debates up to now.


And politically, he's a radical left saying his first intl decision will be to leave NATO, and is ready to leave EU / EURO if he doesn't obtain what he want.