© Reuters. A worker checks a printout of Bild newspaper showing candidates for Chancellor Olaf Schulz of the SPD and Armin Laschet of the Christian Democratic Union (CDU), after the first exit polls at the general election in Berlin,
(replaces the graph with the correct one)
A look at the next day of Danilo Masoni.
The main takeaway from Sunday’s German elections is that coalition talks to form the first post-Merkel administration could take weeks, if not months, to conclude.
Both the Social Democrats (SPD) and the Conservatives are seeking to lead a new government, but for now, a so-called “traffic light” alliance between the SPD, the Greens and the liberal FDP looks likely.
In fact, policy outcomes from either coalition option are not significantly different. But if SPD leader Schulz can build on his narrow victory, then by Christmas we may see an administration favoring a shift toward greater EU integration and looser fiscal policy in Europe’s largest economy.
This possibility could weigh on bonds, while lifting equities as the European Central Bank looks to undo the emergency stimulus. Despite German bond yields falling from two-and-a-half-month highs, a left-wing coalition seemed unlikely to take power.
So stock futures are pointing to a strong start in Europe and on Wall Street. Markets are also cheering the easing of Sino-US tensions after a deal to end a US fraud case against Huawei’s founder’s daughter.
Problems persist at Chinese property developer Evergrande; Hong Kong-listed shares in its electric car unit fell 23% after a warning that it needs to inject cash quickly. However, global sentiment has barely subsided, suggesting that concerns about the developer’s collapse are beginning to recede.
Finally, oil prices’ surge to three-year highs was another reminder of the risks associated with escalating inflation pressures, while panic fuel buying saw nearly a third of BP’s (NYSE) petrol stations in the UK run empty.
German bond yields https://fingfx.thomsonreuters.com/gfx/mkt/znvnebqabpl/morning%20bid.JPG
Key developments that should provide further guidance to the markets on Monday:
German Social Democratic Party seeks allies to replace Merkel-led coalition
* HSBC shares jumped in Hong Kong as the issuance of Huawei exec eased tensions
– BP says nearly a third of UK gas stations are running empty
*Private equity firm EQT (NYSE:) has made a $3.94 billion bid to buy Germany’s Zooplus
* Fed Speakers: Chicago Fed President Charles Evans speaks
* Bank of England Governor Andrew Bailey speaks
* The Bank of Japan releases the minutes of its monetary policy meeting
* Emerging Markets: Ghana Declaration
* US durable goods orders
Treasury Auction: Two- and five-year bonds
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