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Global Stocks Struggle to Find Traction After Merkel’s Win
Futures point to a flat opening for both the S&P 500 and the Dow Jones Industrial Average
By Marina Force
Updated Sept. 25, 2017 8:30 a.m. ET
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Global stock markets struggled to find direction Monday as investors digested German election results that secured Chancellor Angela Merkel a fourth term but with weakened support, while Alternative for Germany (AfD) far-right party notched gains.
The Stoxx Europe 600 added 0.2%, though some regional bourses were in the red, with Spain’s Ibex 35 stock index among the biggest losers. Asia stocks closed broadly lower, with the exception of benchmarks in Japan and New Zealand.
Futures pointed to a flat opening for both the S&P 500 and the Dow Jones Industrial Average, with investors expected to look for guidance from a heavy calendar of Federal Reserve speakers this week.
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Voters in Germany upset the political balance by casting fewer ballots than expected for Angela Merkel’s conservative alliance.
The German chancellor won a fourth term, but her victory was marred by the success of the anti-immigration AfD, which will become the first party that is well to the right to enter the Bundestag since World War II.
German Chancellor Angela Merkel at the headquarters of her Christian Democratic Union party in Berlin on Sunday. Ms. Merkel secured a fourth term in Sunday’s poll.
German Chancellor Angela Merkel at the headquarters of her Christian Democratic Union party in Berlin on Sunday. Ms. Merkel secured a fourth term in Sunday’s poll. PHOTO: MICHAEL SOHN/ASSOCIATED PRESS
The outcome of a likely more fractured parliament seemed to have a relatively muted impact on equities, with the German DAX up 0.2%.
Investors suggested the effect on markets would be short-lived. “In the short term I expect to see the euro a little bit weaker, but in few days’ time we won’t be thinking about the German elections anymore,” said Chris Iggo, global chief investment officer of fixed income at AXA Investment Managers, signaling this wasn’t the first time Europe has seen a rise in anti-immigration parties’ support.
Reaction to the German elections was more evident in the currency market. The euro edged down 0.7% against the U.S. dollar. The WSJ Dollar Index, which measures the greenback against a basket of 16 others, rose 0.3% to 85.82 Monday, after notching Friday its largest two-week percentage gain in 2017.
The New Zealand dollar fell 0.8% against its U.S. counterpart, as Saturday’s election in the country failed to provide a clear result, but put the incumbent center-right government in a good position to negotiate a potential coalition deal. The Japanese yen was 0.2% down after Prime Minister Shinzo Abe announced a snap general election and unveil a fresh fiscal stimulus package by year-end.
Central bank speeches will dominate the headlines this week, with ECB President Mario Draghi set to speak later Monday. Analysts are hoping for clues on what to expect at the ECB’s October policy meeting, where sluggish inflation and plans to reduce bond purchases will likely be discussed. Federal Reserve Chairwoman Janet Yellen is also scheduled to talk Tuesday in Cleveland and Fed Vice Chairman Stanley Fischer will speak Thursday.
Investors will be looking for monetary guidance from the Fed, which last week said it would start unwinding its balance sheet in October and hinted at a rate rise in December.
A streak of subdued inflation readings had made investors skeptical that the central bank would increase rates again in 2017. The Fed’s statement signaling otherwise caught some investors off-guard.
“With the weakness in inflation data and the difficulty of taking out the effects of hurricane Harvey and Irma, I thought the Fed was going to be more cautious on their statement... That was a bit of a surprise,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.
Federal-funds futures, used by traders to place bets on the Fed’s rate-policy outlook, showed Monday a 73% chance of a rate increase by December, according to CME Group data.
In the bond market, the 10-year German government bond yield fell to 0.413%, from 0.450% Friday. The 10-year Treasury yield also moved lower to trade at 2.238%, compared with Friday’s close of 2.262%. Yields fall when prices rise.
In Asia, stock markets finished mostly down, with Hong Kong’s Hang Seng Index off 1.4% as property developers slid, hit by a widening set of measures from Beijing to control home prices. South Korea’s Kospi was also down 0.4%.
New Zealand and Japan stocks were outperformers, helped by weaker currencies. Japan’s Nikkei Stock Average closed up 0.5%, with a softer yen boosting the export-heavy market.
In the commodity markets, Brent crude gained 1.4% to trade at $57.22 a barrel and was on course to close at its highest level since 2015. Meanwhile, gold was down 0.2% at $1,295.60.
— Ese Erheriene contributed to this article.