Limited Market Impact from the German Election
Citi analysts believe that Angela Merkel is likely to remain as Chancellor in the upcoming German federal election. As such, the impact on the euro, European equity and bond markets is likely to be limited.
- Citi analysts expect Angela Merkel to be re-elected as Chancellor for four more years, with her party Christian Democratic Union (CDU) likely to form a coalition with the Social Democratic Party (SDP).
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- Equities: Citi analysts expect the German election to have little impact on German or European equities, unless there is a shock loss for Merkel. Citi remains positive on European equities given the economic recovery in the euro area, improving earnings growth and relatively inexpensive valuations.
- Bonds: In Citi’s base case, the tapering of asset purchases by the European Central Bank (ECB) is likely to have a larger impact on European bonds than the outcome of the German election. In terms of politics, investors may want to be watchful of the Italian election next year.
- FX: The euro appears to have already priced in a Merkel win. Citi analysts expect the euro to remain supported given improvement in the macro environment, the ECB’s less accommodative stance and a reduction in political risk.
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