- Merkel’ CDU posted its worst election result in Lower Saxony since 1959
- Euro subtly lower, German 10Y bund slightly higher
- Chinese inflation mixed with PPI easily exceeding expectations
After the victory in the federal election three weeks ago, Angela Merkal had to concede defeat on Sunday when her CDU was beaten in the regional election in Lower Saxony marking the worst fallout since 1959. The failure could potentially undercut Merkel’s position when it comes to forging a new government as she has been expected to begin coalition talks this week.
The SPD, which currently governs the state with the Green Party, won yesterday’s election gathering ca. 37% with the CDU coming off second best. Although, a reaction on the FX market has been subdued so far as the euro has slipped just marginally and the German 10Y bund has risen a bit more than 1bps, the election fallout could bring some ramifications for the carmaker Volkswagen which is headquartered there, so this is the stock to watch when the cash market opens. All in all, Sunday’s outcome in Lower Saxony strikes a blow to Merkel and her center-right CDU just before coalition talks which are due to kick off before long.
Furthermore, we got Chinese inflation data for September which were quite encouraging. Firstly, CPI came in at 1.6% yoy meeting the consensus but registering a decrease from 1.8% yoy seen in the prior month. On the flip side, Producer Price Index easily beat the forecast at 6.4% yoy and showed a 6.9% yoy increase. Once that a trend keeps its momentum, it could translate into higher price dynamics across consumption goods and services. One could sum up that the China’s economy isn’t exporting deflation anymore which is a promising signal for global reflationary trends.
Taking a quick look at the FX space we could notice that the US dollar is the strongest currency in the G10 basket gaining the most against the single currency and the Swedish krona (more or less +0.2%). Otherwise, the NZD is treading water as a new government may be forged as soon as this week.