Tags: german | parliament | investors | obamacare

Germany, Trump Keep Moving Goal Posts for Global Investors

Germany, Trump Keep Moving Goal Posts for Global Investors
(Dollar Photo Club)

By    |   Monday, 25 September 2017 08:00 AM

The news over the weekend was dominated by politics.

In Germany, Chancellor Angela Merkel has been re-elected for a fourth term, but it was her worst-ever general election result while the nationalists of the anti-European and anti-Islam “Alternative fur Deutschland (AfD)“ party has made a surge in the German federal elections.

Interestingly, the anti-European “Alternative fur Deutschland (AfD)“came in as second political party in the former East Germany part of the country taking 21.5% (!) of the vote.

Investors could do well keeping in mind that the AfD, which is now the third political party in Germany could, which doesn’t mean will, make Merkel a lame duck much faster than most can imagine.

The Social Democrats (SPD) who are the actual coalition partners of Mrs. Merkel’s CDU party had their worst election result since 1949, have declared that they do not want to renew the “Grand Coalition” with the CDU.

It is interesting to see how the German election result follows the broad patterns seen elsewhere in recent years. Anti-establishment parties gained ground largely as a result of support of rural voters and people who do not normally vote.

One should not overlook the fact that the official opposition in Germany does have authority, sharing committees and having an advantage on the parliamentary procedure. So, in case the SPD were not to be the opposition, that role and the advantages with it, would fall to the AfD.

What does this mean?

A Grand Coalition is not impossible, but has to be thought as relatively unlikely now.

Chancellor Merkel will have to negotiate with the Free Democratic Party (FDP), which is a liberal and classical liberal political party in Germany and the Greens that is the green political party in Germany. Both parties do not agree over European integration, and defense as well as the auto-sector will be points of contention.

Coalition negotiations could therefore take some considerable time (months!) and then the agreement will be subject to approval by FDP and Green Party membership.

Fact is that we have now the most splintered German Parliament in modern history.

During this phase, the degree of support that Merkel offers to the European integration plans of French President Macron will be uncertain as this issue is a controversial topic for the FDP.

The UK exit talks should not, theoretically be impacted by the new German situation as the EU, rather than the member states is conducting the UK exit negotiations.

New Zealand had also an election and the balance of power there is held by the somewhat anti-establishment New Zealand First party. Coalition negotiations will also start there, although the global ramifications are perhaps not as great as with the German negotiations.

Meanwhile Prime Minister Shinzo Abe of Japan has just informed that he’ll dissolve the lower house of parliament on September 28 for a general election. At the same time he has announced an $18 billion economic package. The theory is that Abe wishes to capitalize on the weakness of the opposition and the governing LDP’s position in the opinion polls.

This is a strategy that has not necessarily worked that well in the United Kingdom (UK), Germany and New Zealand over the course of the year so far.

There was some politics in the United States over the weekend as well with President Trump alternating between criticizing American football players and tweets casually threatening North Korea

The latest indications from the weekend’s television talk shows are that Republicans do not have sufficient support to repeal the Affordable Care Act or Obamacare, in the Senate.

Away from the politics we just got the German ifo Business Climate Index that fell in September from 115.9 points to 115.2 points, but still remains way above its long-term average of 102.1 points (as of 1991). The manufacturing index declined markedly.

Of more note for financial markets, today there is a quick barrage of central bank speakers.

ECB President Draghi will, no doubt, be sounding dovish because he is Draghi.

From the Fed we’ll get speeches from N.Y. Fed President Dudley, Chicago Fed President Evans and Minneapolis Fed President Kashkari, which will all be of interest to investors.

Finally, Moody's has downgraded the UK's credit rating to Aa2 from Aa1 citing economic uncertainty surrounding the Brexit negotiations and concerns for the stability of public finances.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Fact is that we have now the most splintered German Parliament in modern history.
german, parliament, investors, obamacare
Monday, 25 September 2017 08:00 AM
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