Merkel is Queen of the Ball but her dancing partners will change. Rather that waltz with the SPD, she may have to first give other suitors a chance. The FDP is her natural partner, and the Greens may be more interested in sharing power than ideological purity. They have courted in a state government. It may take a couple of months to sort it out. A Jamaica Coalition (the parties' colors are those of the Jamaican flag) seems the most likely scenario.
The SPD did particularly poorly. The AfD did a little better than expected. Some polls had suggested it would get 13% of the vote and it looks like it got a wee bit more. As we have seen in other European contests, the dominant two parties have been challenged and new (AfD) and smaller (FDP, Greens, Linke) did better.
Besides governing issues in Germany, ideas of a new Franco-German marriage that would sponsor a new European phase, post-Brexit and post-financial crisis, may have to be rethought a bit. Macron gives a big speech in the middle of the week. It is not clear that the FDP would inject a more Anglophile tone in Brexit talks, but that was 10 Downing Street's hope. Negotiations resume now following May's speech at the end of last week.
The impact on the euro was to mark it down initially. It dipped briefly below the figure. However, the macro picture does not change much. Even when coupled with the increased tension between Catalonia and Madrid, the political stresses do not appear systemic
New Zealand also went to the polls, and a coalition government is needed there too. The New Zealand dollar has slipped about 0.25%, unwinding most of its pre-weekend gains. The low before the weekend was $0.7280. It was approached in early turnover, but it held.
Sterling is opening little changed near $1.35. Neither Moody's downgrade, which we identified as a catch-up (to the other major agencies) rather than a new assessment per se, nor London's decision on Uber appears to be a major weight. Sterling had fallen to around $1.3450 in thin, late turnover in NY before bouncing back.
The weekend press continued to speculate that Japan's Abe will call a snap election. We suspect this means a continuation of Abenomics, which is the traditional LDP policies of fiscal and monetary stimulus. The BOJ showed no desire to ease off the monetary accelerator. Local press reports suggest Abe will propose a JPY2 trillion new spending to be included in the budget for the fiscal year that begins April 1. Early childhood education, help with higher education, and increased accessibility of child care were targeted, according to reports. The dollar opened firm against the yen, but within the pre-weekend range. Last week's high near JPY112.70.
Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.
Recommended Content
Editors’ Picks
EUR/USD rises toward 1.0700 after Germany and EU PMI data
EUR/USD gains traction and rises toward 1.0700 in the European session on Monday. HCOB Composite PMI data from Germany and the Eurozone came in better than expected, providing a boost to the Euro. Focus shifts US PMI readings.
GBP/USD holds above 1.2350 after UK PMIs
GBP/USD clings to modest daily gains above 1.2350 in the European session on Tuesday. The data from the UK showed that the private sector continued to grow at an accelerating pace in April, helping Pound Sterling gather strength.
Gold price flirts with $2,300 amid receding safe-haven demand, reduced Fed rate cut bets
Gold price (XAU/USD) remains under heavy selling pressure for the second straight day on Tuesday and languishes near its lowest level in over two weeks, around the $2,300 mark heading into the European session.
Here’s why Ondo price hit new ATH amid bearish market outlook Premium
Ondo price shows no signs of slowing down after setting up an all-time high (ATH) at $1.05 on March 31. This development is likely to be followed by a correction and ATH but not necessarily in that order.
US S&P Global PMIs Preview: Economic expansion set to keep momentum in April
S&P Global Manufacturing PMI and Services PMI are both expected to come in at 52 in April’s flash estimate, highlighting an ongoing expansion in the private sector’s economic activity.