Markets Calm Amid Election Uncertainty

Coalition Talks Begin in Germany and New Zealand

US equity markets are on course to kick off the week slightly in the red, tracking similar moves across most of Europe and Asia overnight.

While the market impact has been negligible so far, the focus at the start of the week has been on politics after Germany and New Zealand went to the polls over the weekend and Japanese Prime Minister dissolved the lower house of parliament – effective 28 September – and called a snap election. The New Zealand election result has probably had the greatest impact, with the kiwi almost 1% lower against the greenback after neither of the main parties secured a majority, leaving the fate of the future government in the hands of the nationalist NZ First party.

The nationalists also performed strongly in Germany, where AfD become the first far right party to enter parliament since the second world war. While the EU will likely declare the result another victory for pro-EU parties, as it did after the French and Dutch election, the fact remains that nationalist parties are becoming increasingly popular and this result is another sign of this. The EU must work harder to reverse the trend if they want to avoid another exit in the years ahead.

Political Uncertainty Dominates Currency Moves

As it is, Angela Merkel’s CDU party will likely go into coalition with the FDP and Green parties, forming what has become known as the Jamaica coalition due to the respective party colours, with another grand coalition with the SPD apparently off the cards. The SPD performed even worse than expected and appeared to suffer as a result of the party’s last partnership with its rival. Still, investors appear confident that coalition talks will go smoothly, although they could take anything from a few weeks to a few months to complete, leaving a small element of uncertainty in the meantime.

Abe Calls Snap Election

As was already widely reported, Japanese Prime Minister Shinzo Abe on Monday dissolved the lower house of parliament and called a snap election, claiming he was looking to seek a mandate to proceed with strong diplomacy. The reality is that Abe is looking to capitalise on his strong performance in recent polls on the back of his stance over North Korea and apparent disarray within the opposition parties. Abe proposed a two trillion yen stimulus package alongside the announcement, a clear sweetener for the electorate ahead of the vote.

Brent Flies But Beware of the RSI

Still to come today we’ll hear from ECB President Mario Draghi, the Fed’s Charles Evans and Neel Kashkari and RBA Assistance Governor Michele Bullock.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.