The DAX index has posted small gains in the Monday session. Currently, the DAX is trading at 12,619.00, up 0.22% on the day. On the release front, Angela Merkel won the German election and will serve a fourth term as president. On the release front, German Ifo Business Climate slowed to 115.2, short of the estimate of 116.0 points. Later in the day, ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee. On Tuesday, Germany releases Import Prices.
Angela Merkel’s CDU won 33% of the vote in the German election, which means that Merkel will have to enter arduous negotiations with other parties in order to form a coalition government. The center-left SFD, which won 20% of the vote, has already said it will not join the CDU, so Merkel has her work cut out for her. The far-right AFD ran on a far-right, anti-immigrant platform, and the party’s surge in support has sent shock waves in Germany and across Europe. The AFD cannot be considered as a coalition partner, which leaves the Greens and the pro-business FDP party as the most likely configuration. However, the FDP has insisted on the powerful finance portfolio and will likely try to reduce German transfer payments to the European Union. If negotiations become deadlocked, European stock markets could head lower. Meanwhile, there was some disappointing economic news out of Germany, as the Ifo Business Climate for September fell short of expectations. The indicator dropped to a 3-month low, but the reading of 115.2 still indicates strong economic growth in the eurozone’s largest economy.
Angela Merkel was all smiles on Sunday night, as the election results were released and it became clear that she had been re-elected as president. However, support for her CDU party dropped from 41% in the last election to 33% on Sunday, creating a complicated post-election picture. It is not only Merkel’s popularity that has suffered; her image as Europe’s most powerful politician has been tarnished, and her most likely coalition partners, the Greens and the FDP will be sure to extract major concessions as the price for their parliamentary seats. Merkel will have to focus her energies on forming a workable coalition and will have to put other issues on the back burner, at a time when the European Union is locked in difficult negotiations with Britain over the terms of its departure from the EU.