LONDON/SYDNEY, Feb 24 – The euro and German stocks saw a significant uptick on Monday following the conservative party’s victory in Germany’s national elections. Investors responded positively to the election outcome, which paves the way for a centrist coalition. However, optimism remained cautious due to potential challenges in forming a government and shaping economic policies.
European markets opened on a strong note, with stocks climbing higher. U.S. stock futures also made gains, bouncing back after Friday’s steep sell-off on Wall Street.
Merz Poised to Lead Germany as Chancellor
Friedrich Merz is on track to become Germany’s next chancellor after his opposition conservative bloc secured victory in Sunday’s elections. The result allows him to negotiate a coalition government, with the most likely partner being the ruling center-left Social Democrats, despite their drop to third place behind the far-right Alternative for Germany (AfD).
Financial analysts noted that the election outcome aligned closely with recent exit polls, providing a sense of stability for investors. According to Peter Schaffrik, a global macro strategist, “The results were largely in line with expectations, making them market-friendly.”
Euro Strengthens Amid Political Clarity
The euro reached a one-month peak of $1.0528 before easing slightly to trade 0.22% higher at $1.0481. Investor sentiment improved as markets anticipated a coalition that would prioritize economic stability. However, challenges remain, particularly regarding fiscal policy.
Merz has expressed intentions to relax Germany’s stringent “debt brake”—a rule limiting annual borrowing to 0.35% of GDP. However, achieving this goal would require a two-thirds majority in parliament, making it a complicated process.
Susannah Streeter, a market strategist, commented, “While Merz is eager to ease fiscal constraints, securing parliamentary approval will be difficult. Economic negotiations will be key in determining the government’s direction.”
German and European Stock Markets Respond Positively
Germany’s DAX index climbed 0.73% in early trading, reflecting investor confidence in the election’s outcome. The STOXX 600 index, which tracks leading European companies, also gained 0.19%. However, technology stocks struggled, weighing slightly on overall market sentiment.
The election result coincides with upcoming discussions among European Union leaders, scheduled for March 6. The summit will focus on providing further aid to Ukraine and addressing funding strategies for European defense. This week also marks the third anniversary of Russia’s large-scale invasion of Ukraine, a factor that continues to influence market stability.
U.S. Markets Stabilize After Recent Losses
On Wall Street, futures contracts for the S&P 500 and Nasdaq each climbed 0.6%, signaling a potential recovery after last week’s losses. The Nasdaq had dropped 2.5%, marking its worst weekly performance in three months. The decline was driven by sharp losses in the “Magnificent Seven” tech companies, which dominate the index.
Investor sentiment took a hit on Friday after a U.S. economic report revealed a surprising contraction in the services sector. Concerns over tariffs and increasing costs added to market volatility.
A key focus this week will be earnings from semiconductor giant Nvidia, whose financial results are due on Wednesday. Investors expect fourth-quarter sales of approximately $38.5 billion and guidance for $42.5 billion in the first quarter. The company’s performance could heavily influence tech sector trends.
Meanwhile, investors are also eyeing an upcoming inflation report on Friday. The Federal Reserve’s preferred inflation gauge, the core PCE index, is projected to show a slowdown, decreasing from 2.8% to 2.6%. However, broader concerns over tariffs could overshadow inflation data in the coming weeks.
A consumer survey published on Friday revealed that long-term inflation expectations among Americans have risen to 3.5%, the highest level recorded since 1995. This development has added pressure on the Federal Reserve to carefully navigate its monetary policy stance.
Currency and Commodity Markets
The U.S. dollar index, which tracks the greenback against major currencies, remained relatively stable at 106.48. Meanwhile, the dollar strengthened slightly against the Japanese yen, rising 0.17% to 149.54. The yen had gained ground last week due to growing expectations that the Bank of Japan might raise interest rates further.
In the commodities market, gold continued its upward trend, trading at $2,946 per ounce. The precious metal has experienced gains for eight consecutive weeks, benefiting from market uncertainty.
Conversely, oil prices have remained under pressure. Speculation about a possible peace deal regarding the Russia-Ukraine conflict has fueled expectations that sanctions on Russian oil exports might ease, increasing supply in global markets. As a result, Brent crude was trading flat at $74.37 per barrel, hovering near its lowest levels since late December.
Looking Ahead
With political developments in Germany offering a degree of stability, market attention is now shifting toward economic indicators and central bank policies. The focus remains on inflation data, corporate earnings, and ongoing geopolitical tensions that could influence financial markets in the coming weeks.
The road ahead for Germany’s new government is expected to be complex, with coalition talks determining the country’s economic and fiscal strategies. As negotiations unfold, markets will closely monitor how policymakers navigate economic challenges in Europe’s largest economy.