Worst Case German Election Result Averted

February 24, 2025

(203) The German DAX index rallied 0.9% so far on a day that saw many Pacific Rim stock markets falter, including declines of 1.8% in New Zealand, 1.1% in India, 0.7% in Taiwan, 0.6% in Indonesia and Hong Kong, 0.2% in China. U.S. stock futures are somewhat higher but in recent days have failed to anticipate sell-offs once during the trading day.

There had been a fear that yesterday’s German election might have made it impossible afterward to form a coalition without including the far right as a junior partner. Extremist political parities were indeed big winners in Germany’s election, with the far-right capturing almost 21% of the vote versus a 10.4% in 2021 and the far-left party winning 8.8%, up from 4.9%. Together AfD and Die Linke won 149 seats. However, the center-right CDU/CSU’s combined voter share rose 4.4 percentage points to 28.5%, the most of any party, and that showing won those parties 208 of parliament’s 630 seats, leaving them a need to get coalition partners with at least 108 seats to secure a viable government. That can be done without including the far-right AfD, whose voter share doubled to 20.8%. Although the previous government headed by the Social Democrats did poorly in Sunday’s election, the SDP still managed to wing 120 seats despite getting 10 percentage points less of the vote than in 2021. One coalition partner, the Free Democrats got fewer votes than the 5% minimum threshold for obtaining any seats. But the environmental Greens took 2 percentage points more and will have 85 seats in the next parliament. These results pave the was for either a CDU/CSU/SDP grand coalition or an even more inclusive CDU/CSU/SDP/Green coalition. Neither combination is going to be thrown together immediately. Typically when the vote is splintered as it was and the stakes are highly contentious, an extended period of haggling over party platform and ministry heads proves necessary before a deal is reached.

In currency trading overnight, the dollar rose 0.3% against the Swiss franc and 0.4% versus the Japanese yen but slipped 0.1% versus the euro, sterling and Canadian, Australian and New Zealand dollars. Ten-year sovereign debt yields advanced by 7 basis points in Italy, 2 bps in Germany, France and Spain, and 1 basis point in the United States. The 10-year Japanese JGB and British Gilt yields held steady.

Bitcoin’s price slid 0.4%, while those for oil and gold went up 0.2% and 0.3%.

The two main data reports this Monday involved the IFO Institute’s German business climate survey and Euroland’s revised consumer price figures. A weaker service sector in February caued that month’s overall reading to stay at 85.2, matching January and not exceeding December’s 84.7 score, which had been the lowest since early into the Covid pandemic. Analysts expected a slightly higher reading, and sub-indices for trade, construction and manufacturing were a tad better than in January. But in services, responders to the survey perceived weaker current conditions and were more bearish about the outlook.

Consumer price inflation in Euroland in January was left unrevised from the flash estimate of a 0.3% monthly drop and a 2.5% 12-month rate of increase. That was up from 2.4% in December and a 42-month low of 1.7% in September. Core inflation printed at 2.7% for a fifth consecutive month. Energy prices were up 1.9% year-on-year versus a 6.1% drop as recently as September, and service sector inflation stayed in a 3.9-4.1% corridor for the fifth straight time. But non-energy industrial goods inflation was only 0.5% for the third time in four months.

Among other price data today,

Consumer price inflation in Lebanon, which hit a record high of 268.8% in August 2023 and was still well into triple digits at 177.2% in January 2024, slipped to a 2-month low last month of 16.1%.
Croatian CPI inflation rose 0.6 percentage points to a 10-month high of 4.0% in January.
Austrian CPI inflation, which accelerated from 0.8% in January 2021 to 11.2% in January 2023 but then receded to 1.8% by October 2023, printed higher last month at 3.2%.
In Singapore, total CPI inflation in January of 1.2% was at a 47-month low and associated with core infation of just 0.8%.

Non-farm payroll jobs in Switzerland posted a 0.9% year-on-year increase in the final quarter of 2024, down from a gain of 1.7% in the last quarter of 2023.

Brazilian consumer confidence has dropped from a 115-month high in September 2023 of 97 to a 30-month low in the current month of 83.6.

Central bank interest rate-setting decisions will be announced later today in Israel and Kyrgyzstan. The Chicago Fed National Activity Index and Dallas Fed manufacturing index are scheduled for release today as well.

Tags: Euroland CPI, German 2025 election results, German business climate index

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on Monday, February 24th, 2025 at 6:42 am and is filed under New Overnight Developments Abroad – Daily Update.
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