Market reaction to the German elections

23 September 2013

After the Fed’s surprise last week, the German elections have now had their say as well, ending with a clear-cut victory for the CDU/CSU.

Although the results are an affirmation of Angela Merkel, they were disappointing for the FDP, a partner in the outgoing coalition, meaning it will take longer for the new government to assemble. Indeed, without a natural partner, an agreement will need to be reached for a new grosse koalition, most likely with Peer Steinbruck’s SPD.

Rocco Bove, Kairos Partners Bond Manager commented: "Theoretically – and simplistically – it is warranted to expect that this will potentially favor a softer stance to Europe’s periphery: the outcome does not deviate too far from predictions and is substantially, at least upon first glance, market friendly, given the lack of parties openly hostile to the EU project in the Bundestag".

In light of this, the biggest surprise has been the so far lukewarm reaction on markets as they open, a sign that even the German elections had already been to some extent metabolized and incorporated in prices, which, we should not forget, show the DAX at 8673, a new absolute high.