Markets relieved by German election as key industries face uncertainty

The result of the elections of Germany gave an optimism shock to the dull markets at the beginning of the week, although the question of whether the new government can offer higher public spending promised and restart the economy continues to hang on the large besieged industries of the country.

Francfurt Dax The index won 0.6% on Monday, exceeding a flat kingdom FTSE 100 and a loss of 0.78% for France CAC 40While the euro pushed higher against the US dollar and the British pound and German borrowing costs have been little changed.

Sunday’s vote won a victory for the conservative alliance of the Democratic Christian Union (CDU) and the Christian Social Union (CSU). This has set up the candidate of the CDU-CSU, Friedrich Merz-a pro-merchant and pro-merchant politician who sits on the councils of directors of the EY in Germany and the Deutsche Börse-also almost certainly to take in As long as the next chancellor.

A certain uncertainty remains however, with a period of coalition talks in advance and a future in which the support of small parties will be necessary to adopt promised policies, in particular the reform of the “debt braking” rule ” ‘Germany.

“I think what the market is seeing now is stability, at least we know who won the elections, we know who claims it, and then we know who the coalition will be based from here. So I think that the market is taking this as a huge positive, “Michael Field, chief strategist for actions in Morningstar, told CNBC” Squawk Box Europe “on Monday.

A worse result on the market could have seen the CDU below the level necessary to start forming a coalition, triggering a “a few disorderly months of parties that rush and no clarity for business,” said Field.

The result is positive for the German economy because a bipartite “great coalition” between conservatives and Social Democrats (SPD) now resembles a probable result, a situation that would accelerate decision-making, said analysts of Danske Bank in a note.

Whether it is a two or tripart coalition which brings a smaller player such as the Greens – with Merz having excluded governments alongside second place from AFD from the far right – the main parties are Aligned on policies such as energy reduction prices and investment more in infrastructure, Morningstar CNBC told CNBC, which would see “positive points for companies on the line”.

According to Field, this could give a boost to the sectors, in particular the German automotive industry, the formerly biting sector which was beaten by competition from electric vehicles from China, low domestic demand, American tariff threats and the regulation.

“The sector is so seriously beaten … Our position is that it does not take much to turn this momentum and change it slightly in the positive direction, and a new government in place with a mandate to really eliminate the prices of the Energy, trying to improve competitiveness in the economy, any little donation could really give this sector the booster it needs at this stage, “said Field.

The largely neglected public services sector is another area that can benefit whether the government is suppressing policies such as energy price ceilings and consumer energy taxes that have limited market yields, the ground has continued.

President of Siemens Energy, Joe Kaeer, told CNBC on Monday that the government needed a long -term program to restructure Germany over the next five years. Such a agenda should focus on the economy, infrastructure, energy, education, innovation, restructuring of the pension system and the “retirement of government reforms and government reforms”.

Arnd Franz, CEO of the manufacturer of Mahle car parts, was waiting for CNBC that the manufacturing sector needed urgent action on taxes, energy costs and flexibility of the labor market.

Citi analysts stressed in a note on Monday that “the post-electoral political landscape will depend on the form of the coalition government to be formed”.

Highlighting the impact of the market that the small parties could have, they declared that the involvement of the Greens in a coalition would be positive for the construction of companies which made heating and cooling equipment, as this would reduce the probability of deleting Change subsidies and mandates of the heat pump.

Citi analysts also said they had seen “Limited [medium-term] Risk for the German Onshore wind auction regime, “citing the CDU platform that it is time to” develop grids, storage facilities and all renewable energies “.

“This would seem to imply any major step aimed at hindering the development of wind energy”, according to Citi, supporting actions such as NORDEX And VestasThey wrote.

However, the key questions remaining for the markets include whether the government will be able to bring the economy back to growth, rebuild low affairs and feelings of consumers and increase budgetary expenses by removing the rules devoted to the Constitution limiting the debt that the government can contract. This last point has increased to a broader objective in recent weeks when European nations have discussed their defense expenses in response to war and tensions of Russia-Ukraine with the United States

“The key result from the market point of view … is the fact that the three parts of the establishment (CDU / CSU, SPD and Greens) do not claim two -thirds necessary to change the constitution,” said Rabobank’s Economics Research The team said on Monday.

The passage of the reform therefore does not have a clear route, the AFD opposing the removal of the braking of the debt, and the Die Linke of the left which is open to it but in contradiction with the SPD, and opposed to arm Ukraine.

“The main thing is that yesterday’s electoral result did not lead to a clear path to the modification of the constitution to allow a change of steps in public spending,” said Rabobank.

They added that the German and regional growth prospects thus remain “decidedly dark in the absence of a dramatic tax change”.