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France's snap election: Could Europe see huge policy shifts?

European markets (^FTSE, ^GDAXI, ^FCHI, FTSEMIB.MI, ^IBEX) saw slight pullbacks in Monday's session after French President Emmanuel Macron called for a snap election in an attempt to offset the rise of the far-right National Rally party throughout Europe.

While European stock reactions were surprisingly "muted", TPW Advisory Founder Jay Pelosky doesn't see major policy shifts happening in European nations despite frightening headlines, discussing where the continent broadly stands economically in the coming years.

"Europe obviously has an opportunity because it's more integrated than any of the other regions. Yet it needs to move further and faster on things like joint funding of defense, on moving forward with AI — not just being content to be a regulator, but it needs to be in the game of AI and issues like that. So it's an opportunity for Europe," Pelosky tells Yahoo Finance's Market Domination Overtime. "I think the fact that leadership is likely to maintain consistency is probably why the market reaction, while notable... has been relatively muted when you're talking about a region that has been performing quite well and is up about 10% year to date, in dollar terms, which is not a bad run for the first half of the year."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

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This post was written by Luke Carberry Mogan.

Video transcript

Well, a political shocker in Europe over the weekend, a surge from the far right in a European parliamentary election tr triggering among other things, French President Manuel Macron to call for a snap election in France later this month for more on this and the impact it has on European stocks moving forward.

We want to welcome in JP, founder of TPW advisory Jay.

It's good to see you.

Thanks for being here.

Um French stocks fell today and we really saw a ripple effect across markets in Europe.

Um Does this, does this put markets there at a disadvantage as we see this political turmoil?

Uh Hi Julie, great to be with you.

And uh no, I don't think so.

Uh Actually the result was I believe pretty much as expected.

And you saw that in the market reaction, which was relatively muted, right?

I think we need to recall that um the euro, for example, was up about 2% versus the dollar over the past month.

European stocks just hit an all time high last week.

So, you know, in the opportunity for a little profit taking, I'm actually surprised the reaction was it muted as it was and I think it's largely because the headlines are talking about a far right kind of expansion of their, of their vote share.

The reality is that several weeks ago, the far right parties were expected to do considerably better than they actually ended up doing.

And the reality is that the mainstream center right parties will remain in control of the European parliament.

So I like to see a lot of policy shift as a result of this.

And then finally, what is interesting to me is that as you pointed out, France and Germany were the places that really saw a significant erosion of votes for the leading parties.

And that's very different from prior European crises where it was typically the periphery, right?

Remember Greece, remember Italy, Portugal, Spain.

Now it shifted to the center of Europe which is uh is interesting and worth contemplating.

And and Jay, you mentioned this, I just wanna, I wanna dig into a little bit more, you know, for investors who are listening.

Right, right now, Jay, are, are there any kind of read throughs any kind of policy potential policy implications for taxes or regulation?

You, you seem to be suggesting perhaps not.

No, I don't think the uh policy shifts are going to be very significant.

I mean Europe does need to accelerate kind of its decision making and its integration.

We just wrote our latest monthly focused on the question of who is going to win the second half of the 20 twenties, whether it's going to be Europe or Asia or the Americas in our trip polar uh framework.

And Europe obviously has an opportunity because it's more integrated than any of the other regions.

Yet it needs to move further and faster on things like joint funding of defense on moving forward with A I, not just being content to be a regulator, it needs to be in the game of A I and issues like that.

So, uh it's an opportunity for you up.

I think the fact that leadership is likely to maintain uh consistency uh is probably why the market reaction uh while notable as you point out has been relatively muted when you're talking about a region that has been performing quite well and is up about 10% year to date uh in dollar terms, um which is not a bad run for the first half of the year.

And Jay, it sounds like that, you know, even with this risky gambit of Macron calling for a snap election, it doesn't sound like you think anything substantial will change in that, that would, for example, cause him to leave power.

Sounds like you, you think it should be fairly status quo.

Well, yeah, in France, in particular, there's likely to be some cohabitation, right?

This is, this is an effort to try and put the uh far right uh into power to see how they kind of perform because traditionally, uh these parties are much better at complaining than governing.

And so this is, is somewhat risky, Macron can't run again.

Uh He's, his term is up in 2027.

So it's more, but I think that's much more French centric, right?

And we're talking eu wide and they're uh the, the big issue, which is how we're playing it.

We're not invested in France, for example, specifically, we're invested in Europe, we're invested in European banks, we're invested in countries like Poland, uh which is a beneficiary from European regional integration.

So in that sense, that view has not, has not changed really at all.

And I think again, the, the point that investors should care about is earnings growth in Europe is robust that the European economy is recovering, that the ECB has started to cut rates and that is being seen as growth supportive rather than set, you know, risk of recession rising.

And I think that's why European stocks have done well yet or date.

Why it hasn't been much of a reaction today uh really at all and why we remain invested in Europe and expect it to continue to do well, Jay, thanks so much for joining us today.

I appreciate it.

Always a pleasure.

Take care.