This A.M.: Evergrande concerns take a back seat while German election ends in gridlock
Despite hitting two-month lows last week, markets in Europe eventually managed to finish higher, on the week, reversing a run of three successive weekly losses.
Concerns about contagion effects from Evergrande haven’t gone away, but they appear to have taken a back seat to worries about supply chain blockages, surging energy prices and rising inflationary pressure.
“This also helps to explain the sharp rise in bond yields which we saw last week, although hawkish turns from the Federal Reserve and Bank of England also played a part, particularly given the underlying price pressures appear to be showing little signs of diminishing,” commented Michael Hewson, chief market analyst at CMC Markets UK, this morning.
German elections
In an outcome that will surprise no-one the German elections at the weekend provided the deadlocked outcome that was predicted.
“The SPD is still going to be the largest party, however they don’t appear to have done as well as expected, while the CDU/CSU appear to have performed much better, although it’s still their worst post war result ever,” Hewon told Morning Wire this morning.
This means that the likely outcome will be a three-way party coalition, with the SPD set to lead the way, alongside the Green’s and one other party, probably the FDP, though Linke might also scrape into the equation, though at this stage this looks unlikely.
“Of course, there could be another Grand Coalition but that doesn’t seem likely given how much damage the last one did to the SPD brand, sending its polling numbers down to as low as 15 per cent as recently as the end of last year. The Greens will be the most disappointed given they were polling at 25 per cent as recently as May, a remarkable fall from grace,” Hewson said.
Using the 2017 election as a benchmark, he thinks it would be unexpected if “we did get a new government before Christmas,” given the last one took until February 2018 to come into any kind of focus, which means that Angela Merkel may have to stay in place for a while longer yet until her successor is appointed.
“What this means for German politics is that nothing much is likely to change in the short term, with investor attention likely to remain on events in China, and Asia more broadly, as well as the various supply crunches taking place across the world,” he said.
“We also need to be cognisant of the fact that we are coming up to the end of the month, as well as the end of the quarter, which could temper, or exacerbate market volatility. Asia markets have had a somewhat mixed session, with the Nikkei giving up some decent early gains, with markets here in Europe looking set to open higher,” Hewson continued.