CREDIT OPEN: Germany's far right AfD surge but will be kept out of power
European stock futures are painting a positive picture ahead of the week's opening session with Dax futures leading the way up (over 1%) at the time of writing. Asian markets were more downbeat Monday as Chinese and Hong Kong based stocks both lost ground (around -0.45% apiece) after a recent bull run fuelled by tech stocks.
Over the weekend, Germany's elections resulted in a Conservative victory over the far-right AfD, as widely expected. Chancellor Scholz’s SPD party suffered its worst post-WW2 performance, securing only around 16% of the vote and finishing third. However, the possibility of a CDU/CSU/SPD "grand coalition" has helped avert a worst-case scenario of an anti-EU, anti-NATO AfD-led government.
CDU leader Friedrich Merz is poised to become Germany’s next Chancellor, replacing Scholz, whose coalition collapsed in late 2024, triggering the elections. DAX futures are up (as already alluded to) with markets seemingly optimistic about potential fiscal policy shifts under the new government. Merz stated on Sunday that he aims to form a government as quickly as possible, potentially easing concerns over prolonged political instability in Europe’s largest economy.
Meanwhile, in the US, long-term inflation expectations hit a 30-year high last Friday. Chicago Fed President Goolsbee noted on Sunday that the University of Michigan (UoM) inflation expectations figure "wasn't a great number" but stressed that at least two or three months of data are needed to confirm a trend. He also remarked that consumer sentiment is a weaker predictor of future trends than in the past. For context, the final UoM report for February showed 5 to 10yr inflation expectations rising to 3.5% and the highest since April 1995.
There is also a German feel on the data front today in Europe with the IFO Business Climate, IFO Current Assessment and IFO Expectations to be published. Markets will be interested to see if the closely watched IFO Business Climate continues its climb off its December lows. If recent ZEW survey is anything to go by, the much-improved optimism on a potential business friendly CDU led government should also spill over to the 9,000 German firms participating in the IFO surveys.
Later this morning the Eurozone releases its finalised CPI data which is not expected to show any difference from its preliminary number of 2.5%. There is little on the US calendar today, with just the Chicago Fed's National Activity Index for Jan and the Dallas Fed's Manufacturing Activity Index for Feb on tap.
Central bank-speak in Europe will be headed by the BOE's Lombardelli, Ramsden, and Dhingra while no Fedspeak of note has been scheduled.
In terms of auctions, the EU has the honour of teeing up the week's first deal with EUR5bn of 2027 and 2039 bonds up for grabs. The Kingdom of Belgium will look to quickly follow that up with up to EUR3bn of 2029, 2034 and 2038 OLOs while the US kicks off the week at the short end with an expected USD69bn sale of 2yr notes.
Earnings releases will also continue to trickle out in the US with 7 companies scheduled to update today including household name Domino's Pizza Inc.
For more on latest developments see the European Breakfast Briefing.
Monday's supply prospects
Survey respondents expect euro activity to slightly decline in volume with a EUR32.5bn average combined estimate put forward for this week. That after the final weekly single currency haul last week was EUR39.4bn, down considerably from the previous week’s EUR62.96bn. IG corporates did the heavy lifting as the sector recorded its busiest week of the year at EUR14.25bn, spearheaded by jumbo M&A-driven trades from Carlsberg and Johnson & Johnson. This was the first time this year that the SSA sector didn’t see the most weekly single currency issuance, whilst the sector didn’t even get second place last week with unsecured FIG issuance coming in at EUR10.45bn.
** TCC Holdings EUR500m exp 5yr green
Thirty-four ex-SSA borrowers teamed up to raise USD53.75bn in the US public debt market last week, enough to top, not only the average weekly estimate of USD40bn, for the seventh time this year, but the most optimistic outlook of USD50bn as. It was also enough to rank it as the third busiest week of the year. For more colour see the IG WEEKLY WRAP UP.
What to watch Monday (and for the week)
** Key Data: GE Feb IFO numbers (09:00), EC Jan F CPI (10:00), US Jan Chicago Fed National Activity Index (13:30) and US Feb Dallas Fed Manufacturing Activity (13:30)
** Key events/speakers: BoE’s Lombardelli (09:00), Ramsden (13:15) and Dhingra (18:00) speak
** Auctions: EU to sell up to EUR5bn 2027 & 2039 Bonds (10:30), BE to sell EUR2.6-3bn 2029, 2034 & 2038 OLOs (11:00) and US to sell USD69bn 2yr Notes (18:00)
** Earnings: 2 Stoxx600 & 7 S&P500 companies report
** Holidays: Japan Emperors’ Day
** Viewpoint - The week ahead:
- Eyes on US Weekly Initial Jobless Claims out on Thursday amid government spending freezes and job cuts
- Japanese Tokyo CPI for Feb and Australian CPI for Jan on the slate
All times GMT
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