The German stock market index, the Dax, has made gains at the start of the week. At the Xetra closing, the index was calculated at 22,425 points, a 0.6 percent increase compared to the previous trading day.
Rheinmetall, a German defense company, was the biggest gainer, as investors expect the company to benefit from increased military spending in the next German government.
“In the initial reaction of the Dax today, the relief of investors was palpable, as it became clear that there is only one viable coalition option with two parties” said Konstantin Oldenburger, a market analyst at CMC Markets. “Even the option of a small correction was in the air, as the market had already used the previous week for a small correction. However, follow-up buying was lacking, which is likely due to the fact that the crucial talks are still ahead of the CDU and SPD.”
“It is likely that the stock market will not be able to hold onto the gains until concrete measures are in place. Despite a two-party solution, the coalition talks could be lengthy and unproductive, similar to the situation in Austria. Therefore, the theme of a further correction of the overheated stock prices in the Dax is still not off the table and at least a further decline in the direction of 22,000 points could occur.”
The German economy is also pinning its hopes on the new government, as the Ifo business climate index shows. “While business expectations have improved and are worth a positive assessment as a sign of a different economic policy, the assessment of the current situation has strongly decreased. We will see what the new government is capable of. Fundamentally, the recipe seems very simple. It is best to not introduce new regulations and to reverse the multitude of rules of the past years, as Mario Draghi emphasized in his report on the future of the European competitiveness in his capacity as the head of the European Central Bank.”
“The result of the German federal election also makes it clear that the economic relationships with partners in the US and China will be put to a new test after the election. US President Trump is likely to tighten the screws against Germany and could do so to the extreme and not loosen up quickly” Oldenburger said.
The European common currency was slightly weaker at the Monday afternoon: one euro cost 1.0471 US dollars and one dollar was worth 0.9550 euros.