Frankfurt equities rose significantly on Monday after the conservative faction led by Friedrich Merz triumphed in Germany's national election. This electoral victory has boosted investor optimism, as many believe it signals the potential for Europe’s largest economy to emerge from its current recession.
With Merz’s Christian Democratic Union/Christian Social Union (CDU/CSU) bloc securing over 28 percent of the vote, the conservatives handedly defeated Chancellor Olaf Scholz’s Social Democrats and the Greens. The far-right Alternative for Germany (AfD) also celebrated, achieving more than 20 percent of the ballots cast.
This newfound political dynamic has led to positive changes on the market; Frankfurt’s DAX index, for example, gained 0.8 percent shortly after trading commenced. Investors reacted favorably to Merz’s speedy coalition government formation calls, signaling encouragement from the new government, as he noted, “the world isn’t waiting for us.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented, “The hope the conservatives’ win might help pull Germany out of economic stupor and help bolster collective defense, has lifted investor spirits.” This sense of potential recovery has driven European defense stocks upward, with Germany’s Rheinmetall surging close to four percent and Britain’s BAE Systems climbing nearly three percent.
European equities displayed mixed results beyond Germany’s borders. London's FTSE 100 index experienced modest gains of 0.2 percent, whereas Paris’s CAC 40 slipped by the same margin. The fluctuations reflected concerns stemming from negative economic forecasts coming out of the United States as investors remain wary of the inflationary effects tied to U.S. policies.
Internationally, market apprehension was evident. Concerns were heightened by former President Donald Trump’s indications of imposing tariffs on various trade partners, casting uncertainty over interest rates and economic growth. A report indicating the U.S. services sector activity hit its lowest point since 2021 only exacerbated these fears, as consumer sentiment plunged almost ten percent from the previous month.
Investors had been anticipating favorable economic outcomes from the election; instead, flags of caution were raised due to melancholic trends evident throughout global markets. Asian stock exchanges, following suit, faced declines as market reactions to poor economic performance on Wall Street lingered.
Chinese markets echoed this trepidation: Shanghai’s Composite index showed minor declines, and Hong Kong’s Hang Seng Index retreated by 0.6 percent. Meanwhile, the Nikkei 225 was closed for the day due to public holidays.
Market analysts are now reconsidering their projections for interest rate cuts from the Federal Reserve due to the anticipated inflation from Trump’s proposed economic measures. Investors are carefully reevaluated stances, weighing the odds of potential slowdowns against the backdrop of the new government leadership in Germany.
Despite these global concerns, some stocks found respite. For example, Amsterdam-listed Just Eat Takeaway saw incredible gains of 53 percent after receiving a 4.1 billion-euro takeover proposal from investment juggernaut Prosus.
Among currency markets, the euro experienced gains against the dollar, thanks to the overall positive sentiment generated by Germany’s election. The exchange rate improved to $1.0475 from $1.0462, with the pound also rising against the dollar.
With oil prices being closely monitored by market players, slight upturns were noted as the markets grappled with broader economic uncertainties. Brent crude rose by 0.2 percent, resting at $74.18 per barrel. Observers are also speculating on the potential easing of sanctions against Russian oil exports amid fluctuated global demand.
Looking forward, the election results will likely bring volatility to both the European and international markets as key economic indicators continue to evolve. Investors will be watching the newly formed coalition government closely, assessing its impact on both domestic and international policies.
Merz now faces the significant challenge of unifying various factions within his government to pursue policies stabilizing Germany’s economic future as pressures from the U.S. loom bright. Only time will reveal how these changes will reshape not just Germany but the broader European economic outlook as well.