• Euro weakens as the result of the election in Germany was unclear and investors await Draghi’s speech
  • Ifo index surprises to the downside, DAX (DE30) manages to resume gains though
  • NZD is also hinged upon political uncertainties 

 The last weekend was bountiful in important events. Investors digested the outcomes of the elections in Germany and New Zealand. In both countries, neither of parties gained enough votes to form a majority government and coalition talks shouldn’t be easy. Thus, higher political uncertainties weighed on EUR and NZD. Later on, markets await for Draghi’s comments on monetary policy as he might drop some hints ahead of ECB’s October meeting. 

Merkel’s CDU/CSU won the election in Germany, although the Grand Coalition is unlikely to govern for next four years as SPD’s Schulz ruled out further collaboration. Thus, Merkel is in a weak position to negotiate a difficult Jamaica coalition with FDP and Greens. The Chancellor said that there will be a stable government by Christmas, nevertheless, some suggest that early elections are even possible this year. Thus, the situation is unclear, which weigh on sentiment toward EUR – the common currency has lost almost 0,70% against the greenback so far. On the other hand, German DAX quickly pared losses and now it’s leading in Europe gaining over 0,2%. The rest of main European indices stay in the red. 

The German Ifo index was out this morning. The gauge measures the current business climate and expectations for the following six months and it’s compiled based on opinions delivered by manufacturers, builders retailers, and wholesalers. Cutting to the chase, the headline came in at 115.2 against the forecast at 116. Otherwise, expectations slid from 107.9 to 107.4 while the street’s call suggested a tiny bounce to 108. Finally, the current assessment sapped from 124.6 to 123.6 falling short of estimations at 124.7. Today’s readings differ from PMIs released on Friday, although they didn’t spur higher volatility on the market.

In New Zealand, the currently ruling National Party fell short of the majority by 3 seats. Prime Minister Bill English has claimed a mandate to form the next government, however, all depends on backing from New Zealand First Party. Markets favor current government as it managed to achieve the budget surplus and boost growth, so the results spurred some nervousness and pushed NZD a bit lower at the opening. About 380 thousands overseas ballots, are yet to be counted. In the meantime, Kiwi has recouped some of its initial weakness but it’s still losing almost 0,9% vs the US dollar.

Later on, investors are looking for the Mario Draghi’s speech. The ECB’s chair is slated to talk on monetary policy at 14:00 pm BST. Even if he won’t say anything new, markets will surely scrutinize each of his words, thus the higher volatility on EUR can’t be ruled out. Moreover, there are scheduled more central bank speakers for this afternoon, including the Fed’s Dudley and Evans.