Marketmind: Teutonic shifts
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A look at the day ahead from Danilo Masoni.
The main takeaway from Sunday’s German election is that coalition talks to form the first post-Merkel administration could take weeks, if not months to conclude.
The Social Democrats (SPD) and the conservatives both are seeking to lead a new government but at the moment, a so-called “traffic light” coalition between the SPD, Greens, and the liberal FDP seems most likely.
In truth, the policy outcomes from either coalition options are not vastly different. But if SPD leader Scholz manages to capitalize on his narrow victory, then by Christmas, we may see an administration which endorses a shift towards greater European Union integration and a looser fiscal policy in Europe’s biggest economy.
That prospect may dent Bunds, while lifting equities at a time when the ECB is looking to roll back its emergency stimulus. However German bond yields edged down from 2-1/2-month highs, it looked unlikely a leftist coalition would take power.
So equity futures point to a strong start in Europe and on Wall Street; markets are also cheering an easing in Sino-U.S. tensions following a deal to end a U.S. fraud case against the daughter of Huawei’s founder.
Problems continue at Chinese property developer Evergrande; Hong Kong-listed shares in its electric car unit fell 23% after a warning it swiftly needs a cash injection. However, global sentiment was barely dented, suggesting concerns over the developer’s collapse are starting to ebb.
Finally, a surge in oil prices to three-year highs was another reminder of risks associated to mounting inflation pressures, while panic fuel buying saw nearly a third of BP’s petrol stations in the UK running on empty.
German bond yields
Key developments that should provide more direction to markets on Monday:
* German SPD seeks allies to replace Merkel-led coalition
* HSBC shares jump in Hong Kong as release of Huawei exec seen easing tensions
* BP says nearly a third of its UK fuel stations running on empty
* Private equity firm EQT bids $3.94 bln for Germany’s Zooplus
* Federal Reserve speakers: Chicago Fed President Charles Evans speaks
* Bank of England Governor Andrew Bailey speaks
* Bank of Japan releases Minutes of Monetary Policy Meeting
* Emerging markets: Ghana cbank announcement
* U.S. durable goods orders
* Treasury auction: 2-year and 5-year notes
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