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European markets rebound and Political developments in Germany

Article By: ,  Senior Market Analyst
February 7, 2018 12:01 PM

The FTSE enjoyed strong gains through the day, helped by a rebound in the US overnight and a return to calm in the US markets as they opened today. The UK index has rallied over 1.8% reaching 7275, as it starts to claw back the losses over the past 3 sessions. 

German grand coalition agree terms 

Whilst indices across Europe have been performing well, the DAX is a standout winner jumping over 1.5%. The Dax is not only taking the lead from the rebound in the US but is also finding support as investors cheer progress in the grand coalition talks. Germany’s Conservative Christian Democratic Union (CDU) lead by Angela Merkel and the Social Democrats (SPD) have finally agreed terms for a grand coalition, ending months of political vacuum, whereby markets were starting to fear a return to the polls. 

The news of the agreement is bittersweet; whilst the political vacuum ends on one hand, on the other, the SPD will gain control of 6 ministries as part of the deal, including the finance ministries and the foreign ministries. These terms essential give the left of center party a critical role in shaping German policy on Europe over the coming four years. The shift of power shows the lengths that Merkel has had to go to in order to get this coalition sealed and delivered. 

The Dax is currently trading 1.5% higher on the day at 12569, after recovering from a nadir of 12.232 in the previous session. Continued optimism towards the global rebound in equities and the political situation in Germany could see the Dax bulls look to target 12590 as a near term target, before heading on through 12600 before returning towards 12678. 

Euro more cautious of coalition terms 

The euro, on the other hand is seen extending its losses despite the coalition deal. EUR/USD is looking to test $1.23 and is now below its 100 SMA, as concerns are growing the SPD may look to implement some euro unfriendly policies. A convincing break through $1.23 could open the doors to $1.225. 

US starts in a more orderly fashion 

Looking to the US, the open has seen some level of tranquility return to the US equity indices. The Dow is trading 168 points higher, whilst the S&P is up 0.4%, as the volatility from the previous sessions appears to have worked its way out of the market.

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