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Merkel In For Fourth Term

26 Sep 2017

Jack Turner, Research Analyst

The latest weekly covers the German election results, how European equity values are rising and three more recent news pieces that moved markets. We also flag three announcements this week.


Angela Merkel's party won the German federal election but lost about 20% of its support. So a four party coalition will be needed in order for the government to have a majority in the Bundestag. A CDU/ CSU coalition may take place with the FDP/ Free Democratic Party and the Grűne/ Greens. However, this might be easier to form than typically the case given the shock at the AfD/ Alternative fűr Deutschland results. Founded less than five years ago, the far-right won 13% of the vote nationally, and had far bigger pockets of support in certain states: in the former East Germany, the party looks to have secured 22% of the vote.



Theresa May’s speech in Florence on Friday 22 September was the confirmation for many that we are on track for a soft Brexit. The combination of the early trigger of Article 50 and the loss of a parliamentary majority for the Conservatives both forced May’s hand. However, a new battle line for Brexit campaigners has effectively been drawn with regard to potential payments to the EU to ensure that the UK can continue to access the Single Market after the transitional phase. Whether a pay-to-play arrangement is indeed an option still has to be confirmed, but May’s government will still face significant spats even if it gets its proposed new 2021 deadline and may not make it to the 2022 scheduled election year.



Emmanuel Macron has signed five executive decrees to overhaul France's labour laws, a main pledge for his presidency, having gained parliamentary support for the changes. With some of the country’s legislation dating back over 100 years, Macron is enabling employers to negotiate individual contracts with employees rather than only be able to leverage industry wide deals done with the trade unions. He also proposes to cap unfair dismissal payments. The new laws will be helpful to France’s competitive push to attract jobs currently based in London that plan to move following Brexit.



The US’s Federal Reserve (Fed) decided to keep interest rates on hold, but remained wedded to another rate hike by the end of 2017 and three more in 2018. While the market does anticipate one more in 2017; there is only a 25% consensus view if a single rate hike in 2018. The Fed also stated that it will begin to reduce its US$4.2tn portfolio of US Treasury bonds and mortgage-backed securities next month and cut up to US$10bn each month from the maturing amount it reinvests. The rate rises are linked to the increased growth forecast given the Fed sees 2017 growth up by 0.2% to 2.4%.

European equity values have risen by 3.5% over September so far and the position remains 7IM’s biggest overweight in its portfolios. The market is up on the back of good macro economic data and due to a softening Euro. The solid macro economic data includes: positive Q3 construction data in the Eurozone, which will provide a solid boost to GDP growth; headline consumer sentiment continuing to signal robust growth in retail sales and consumer spending; and strong composite purchasing manager indexes that rose to 56.7 in September, up from 55.7 in August and above the market consensus of 55.6. Manufacturers enjoyed their best month since early 2011. Meanwhile, on the Euro, Mario Draghi’s comments were seen as slightly dovish given that the European Central Bank is proposing tapering its monthly asset purchases.  

27 Sep US Durable Goods Orders   //   28 Sep Eurozone Business Confidence  //  29 Sep – UK Consumer Credit Report

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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