Written by German election outcome confirms polls; negotiations commence
Despite heightened concerns about a decisive result from the right-wing AfD party, the German federal elections confirmed the shift in the political landscape depicted by recent polls. The CDU/CSU party secured the top spot, but it was not a landslide win. Merz’s party failed to earn more than 30% of the votes, while AfD climbed to 21%, doubling its support from the 2021 election as it dominated in the eastern German states. However, CDU/CSU managed to secure 208 seats, benefiting from the failure of both the FDP and BSW parties to reach the 5% threshold.
Merz, who is expected to become the next Chancellor, has already stated that he wants the new government to be in place by Easter (April 20). However, his target could prove optimistic. Based on seat allocation, another grand coalition is the primary option, as the CDU/CSU and the SPD parties together hold 328 votes. The Greens are on standby to enter the coalition as the third wheel, particularly if certain SPD heavyweights have second thoughts about governing with the CDU/CSU again.
Following the announcement of the initial exit polls and the first seat projection, the euro recorded gains against both the US dollar and the pound. This was probably a relief rally as market participants feared a scenario where the AfD achieved a better result, potentially even vying for the first spot, which did not materialize.
The euro is giving back a good chunk of its early gains today, as negotiations for the next German government could prove lengthier than anticipated. Meanwhile, ECB officials are publicly debating the direction of interest rates. The doves are pushing for a continuation of rate cuts, with French Governor Villeroy targeting a 2% deposit rate by summer, matching market expectations. However, the hawks are defending their positions, with Belgium’s Wunsch calling for a more active decision-making process.
Interestingly, the German DAX 40 stock index has opened higher, but overall risk appetite remains fragile following Friday’s abysmal performance from US equities and US President Trump’s efforts to restrict Chinese investments in vital US industries.
Tariffs in the spotlight again
Following a relatively quieter week on the tariffs front, US President Trump is expected to return with a vengeance, as the one-month postponement of the 25% tariffs on both Canadian and Mexican imports is set to expire on March 4. This could mean another round of meetings between the three leaders this week, with Trump potentially demanding even more aggressive concessions from his neighbors.
Ukraine will also remain in the spotlight, as Europe is desperately trying to play its part in the US-Russia negotiations. French President Macron visits the US today, but little progress is anticipated. The US is mostly focused on securing a favourable agreement with Ukraine about rare earth minerals, and after that to continue its negotiations with Russia for the completion of the conflict.
Gold maintains gains, while both oil and cryptos suffer
Amidst these developments, gold remains in demand, hovering just above $2,935 but quite close to its recent all-time high. A possible Ukraine-Russian peace deal could prove damaging to the precious metal, but Trump’s tariffs strategy may continue to act as a significant tailwind.
On the other hand, oil bulls are trying to take advantage of the new two-month low. Despite recent headlines that the OPEC+ alliance is considering postponing its planned supply increases, the weekend’s announcement that Iraqi Kurdistan is preparing to resume oil exports, and expectations that Russian oil will be freely available again soon have contributed to the latest downward move.
Finally, the crypto market remains under pressure following the largest ever illegal removal of cryptocurrencies. The Bybit exchange has apparently lost $1.5bn worth of Ethereum from a cold wallet, raising concerns about the safety of exchanges. This event does the cryptomarket no favours, with Bitcoin stuck around the $95,000 level and its alternatives losing ground again today.
By XM.com
