German election result sends shares and euros green

Today in focus

Today the focus is on the final inflation publication for the euro area in January. The last pressure enables us to digest the climb in January, which was probably driven by many unique factors.

In Germany we receive the IFO index for February. It will be interesting to see whether it reflects the PMI data on Friday, with a marginal increase in the composite measure – mainly due to an increase in the weak processing trade.

The focus for the rest of the week will be on the country cpis in February from Germany, Spain and Italy. If we keep an eye on Europe, we will also receive euros negotiated wages and credit growth. In the United States, the preferred level of inflation of the FED, the PCE, will be released on Friday, while we continue to monitor every tariff announcement by the Trump administration and all news about the geopolitical front.

Economic and market news

What has happened since Friday

The German election makes a two-party government between the conservative CDU/CSU and the Social Democrats (SPD) the most likely result that is a positive result for the German economy. The markets have also reacted positively to the news by strengthening the euro by 0.6% during the Asian trading hours, while the DAX Futures rose by 1.1%. Conservative Federal Chancellor Friedrich Merz is almost certain that he will be the next chancellor when his party became the largest with 28.6% of the vote. A majority government with the Social Democrats is possible because two parties have fallen under the 5% sponia threshold for entry into parliament, namely the FDP at 4.33% and the BSW at 4.97%. This gives 328 seats for CDU/CSU and SPD, over the 315, which are required for a majority. A two-party “Grand Coalition” removal is a positive result, since the decision-making process is easier than with a three-party government. Negotiations on the formation of the government will probably take one to two months.

We see a probability of 70% for a reform of the “debt brake” in order to enable more credit in German in view of the results. With regard to the defense spending and the support for Ukraine, the election result was not the best scenario, since the right -wing extremist (AfD) and the left party together secured 34.3% of the votes. Therefore, you can block off-budget defense funds and laws that require the majority of two thirds. However, with a less fragmented parliament and a likely presence of the two-party government in the EU, it will probably be stronger compared to the previous government, which is positive news. For more information, see Flash: German elections – a positive result for markets and business, February 24.

Friday was about PMIs in February, with publications in most major economies. In the euro region, the composite PMI with 50.2 (disadvantages: 50.5) was lower than expected, which was mainly attributed to the PMI of the service sector, which was used to 50.7 (disadvantages: 51.5) while the production measure Up to 47.3 (disadvantages: 47.0) tick. The PMI services were towed by a very high decline in the French service sector, while southern Europe recorded rising PMIs. With a view to the future, we expect the manufacturing trade to be gradually improved and over 50 will increase at the end of 2025, which will be promoted by lower interest rates.

In Great Britain, the overall report was slightly on the weak side, whereby the production was 46.4 (disadvantages: 48.5) lower than expected, while the services were printed more with 51.1 (disadvantages: 50.8), where Composite was changed at 50.5 (disadvantages: 50.6). The British retail turnover for January was also announced, which was more than expected, since the retail turnover of Auto -fuel rose by 1.2%y/y (disadvantages: 0.6%, previously; 2.1%). The surprise of the top was due to an increase in sales of grocery stores and online retail trade, but the numbers in December were revised downwards, which restricted the general surprise.

In the United States, the PMI reading was similar to European pressure, since the production index continued to improve to 51.6 compared to 51.2 (disadvantages: 51.5), while the service measure from 52.9 (disadvantages: 53) to 49, 7 went back, the weakest number since January 2023. Thus, the composite measure was hardly above the neutral level at 50.4 (prior: 52.7). In view of details, the index for the service output price has fallen to the lowest status since May 2020 and below the pre-Kovid average, while the employment indices were based on both production and employment. It is positive to note that the manufacturing price indices and the inventory balance of order increased in investigation. Overall, we see the pressure in view of the attitude of the Fed as clearly fake.

The final publication of inflation expectations from the University of Michigan for January showed that the 1 -year expectations of the Flash estimate were 4.3% unchanged, while the 5 -year measure higher to 3.5% was revised – the highest level since April 1995. Important. At the moment, various inflation indicators deliver mixed signals.

In geopolitics, the Ukrainian President Zelenskyy explained for the first time that he was ready to reset his presidency in order to secure Ukraine a NATO membership or to achieve long-lasting peace. The remark comes to a ceasefire company after the last few weeks of focus on a ceasefire company in which the USA in Saudi Arabia has bilateral discussions with Russia. Zelenskyy also rejected the demands of the Trump administration after a significant share of the proceeds from the extraction of the Ukrainian mineral deposits. On February 27, from 9:30 a.m. to 10 a.m.

Shares: What looked like a resonance day for stocks was angry in the US opening bell. Global shares closed one by the USA with S&P 500-1.7% and Small Cap Russell 2000 with S&P 500-1.7% and Small Cap Russell 2000 with full. In view of this, Europe even exceeded 0.5% higher with Stoxx 600. The US session crossed all risk aestes. Investors sold cyclical (technology, booklings of consumers, industry 2-3%) and bought them in defense means (staples and supply companies in green). Small caps are considerably subject to almost -4% for the week. Vix rose north of 18 years, the highest since the beginning of February. The investors flocked in bonds, whereby the 10 -year US dollar moved to 4.4% after they had touched 4.57% at the beginning of this week. Bitcoin fell by -4% and oil prices -3%. Gold was the outlier, “only” by 0.1%.

The sale of -1.5% for global stocks in the last week, the first expiry time since January, has been completed. Note that Europe was higher (0.5% WTD), so the outperformance is still considerable. Light in the tunnel today with US futures one step again.

FI: On Friday, the US Ministry of Finance provides weaker data and the speculation that the expenses of the Department of Government Efficiency will slow down the economy more than expected. This has also led to a closer spread between 10 years in February and is now again below 200 BP. In Germany, CDU/CSU won the choice, as stated by the surveys, and the head of CDU/CSU Merz is expected to form a coalition with the SPD and possibly another party.

FX: Commodity currencies lost to JPY, CHF and USD on Friday because the risk mood became angry to end the week. According to the results of the German elections, when the markets were opened, EUR made easy to jump.