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Early Thoughts On Global Elections

Published 09/25/2017, 12:01 AM
Updated 07/09/2023, 06:31 AM

Merkel is Queen of the Ball but her dancing partners will change. Rather that waltz with the SPD, she may have to first give other suitors a chance. The FDP is her natural partner, and the Greens may be more interested in sharing power than ideological purity. They have courted in a state government. It may take a couple of months to sort it out. A Jamaica Coalition (the parties' colors are those of the Jamaican flag) seems the most likely scenario.

The SPD did particularly poorly. The AfD did a little better than expected. Some polls had suggested it would get 13% of the vote and it looks like it got a wee bit more. As we have seen in other European contests, the dominant two parties have been challenged and new (AfD) and smaller (FDP, Greens, Linke) did better.

Besides governing issues in Germany, ideas of a new Franco-German marriage that would sponsor a new European phase, post-Brexit and post-financial crisis, may have to be rethought a bit. Macron gives a big speech in the middle of the week. It is not clear that the FDP would inject a more Anglophile tone in Brexit talks, but that was 10 Downing Street's hope. Negotiations resume now following May's speech at the end of last week.

The impact on the euro was to mark it down initially. It dipped briefly below the figure. However, the macro picture does not change much. Even when coupled with the increased tension between Catalonia and Madrid, the political stresses do not appear systemic.

New Zealand also went to the polls, and a coalition government is needed there too. The New Zealand dollar has slipped about 0.25%, unwinding most of its pre-weekend gains. The low before the weekend was $0.7280. It was approached in early turnover, but it held.

Sterling is opening little changed near $1.35. Neither Moody's downgrade, which we identified as a catch-up (to the other major agencies) rather than a new assessment per se, nor London's decision on Uber appears to be a major weight. Sterling had fallen to around $1.3450 in thin, late turnover in NY before bouncing back.

The weekend press continued to speculate that Japan's Abe will call a snap election. We suspect this means a continuation of Abenomics, which is the traditional LDP policies of fiscal and monetary stimulus. The BOJ showed no desire to ease off the monetary accelerator. Local press reports suggest Abe will propose a JPY2 trillion new spending to be included in the budget for the fiscal year that begins April 1. Early childhood education, help with higher education, and increased accessibility of child care were targeted, according to reports. The dollar opened firm against the yen, but within the pre-weekend range. Last week's high near JPY112.70.

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