German election summary: Merkel wins most votes, but less of the vote than expected while SPD poor performance makes Grand Coalition unlikely and support for AFD surged which makes it the first far-right party to enter Parliament in 60 years
German ARD Exit Poll:
CDU/CSU - 32.5% SPD - 20% AfD - 13.5% FDP - 10.5% Greens - 9.5% Left party - 9%
As expected, Merkel's CDU/CSU union secured the most amount of votes for any party but below the 50% threshold for an absolute majority. Additionally, and despite commanding the most votes, an outcome of 32.5% (% taken from the exit poll) was below the expected 36% (FT poll of polls) and was also coupled with a particularly disappointing performance by the SPD who secured just 20% (Exp. 22%); their worst performance since WW2. Elsewhere, the AfD have re-entered the Bundestag with 13.5% of the vote, the FDP largely performed as expected, while the Greens and Left exceeded expectations.
Given their poor performance and desire to make sure the AfD do not become the opposition, in the wake of the exit poll, the SPD declared that they would not form a Grand Coalition and instead would form the opposition themselves. This subsequently paves the way for a potential 'Jamaica Coalition" (CDU/CSU, Greens and the FDP). Despite Germans often having to historically accept compromises whilst forming government, getting both the Greens and the FDP on board was always going to be difficult. It was then later reported that the FDP leader has distanced himself from the possibility of a 3-way coalition. The Greens appear to be willing to come to the negotiating table with Merkel, therefore, the German Chancellor is going to have to go on a charm offensive to allay the concerns of the FDP.
Reaction details (21:41)
In terms of the market reaction, given the political instability and lack of clarity over the coalition building process EUR/USD gapped lower by 30 pips.
Analysis details (21:41)
Note, in 2013 the coalition building process (which was a more straight-forward affair than what Merkel could encounter this time round) took until December and therefore the coalition process this time round will likely take months. Furthermore, given the presence of AfD in the Bundestag and their anti-establishment views, the German law-making process will likely be more difficult than it has been in previous years.
24 Sep 2017 - 21:40- ForexImportant- Source: RANsquawk
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