European stocks climb as investors digest German election results

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European stocks climb as investors digest German election results

Sep 27 2021

LONDON — European stocks rose on Monday, with German election results seen eliminating a key market risk for investors in the region.

The pan-European Stoxx 600 climbed 0.5% in early trade, with oil and gas stocks adding 1.7% to lead gains as all sectors and major bourses entered positive territory.

In Germany, preliminary results on Monday morning showed the center-left Social Democratic Party gaining the largest share of the vote with 25.8%. Angela Merkel’s right-leaning bloc of the Christian Democratic Union and Christian Social Union was seen with 24.1% of the vote.

But coalition negotiations, which could begin on Monday, are likely to take weeks or even months.

Market watchers noted that the poor showing for Germany’s far-left Die Linke party, meant that a fully left-leaning coalition in the Bundestag was now out of the question.

Holger Schmieding, chief economist at Berenberg Bank, said in a research note that a pact between the SPD, Die Linke and the Greens could have “impaired trend growth through tax hikes, reform reversals and excessive regulations.”

Elsewhere on Monday, European Central Bank President Christine Lagarde will deliver a statement to a European Parliament committee, and the U.K.’s opposition Labour party will resume its annual conference in Brighton.

There are no major earnings reports or economic data releases on Monday.

U.K. energy stocks like BP will be closely watched, after panic buying over the weekend due to a truck driver shortage that left many gas stations in Britain without any fuel. BP shares gained 2% in early trade.

London-listed Swiss office space company IWG climbed 6.1% to lead the Stoxx 600 after reports that it is exploring a multibillion pound break-up.

At the bottom of the index, Spanish wireless company Cellnex fell 2.9%.

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German elections: Centre-left narrowly wins against Merkel's party

By Paul Kirby
BBC News, Berlin

September 27, 2021

Germany's centre-left Social Democrats have narrowly beaten the party of outgoing Chancellor Angela Merkel in federal elections, according to preliminary results.

SPD leader Olaf Scholz says he has a clear mandate to form a government, but his conservative rival, Armin Laschet, is determined to fight on.

The two parties have governed together for years but are unlikely to continue.

Instead the Greens and liberals are looking for a role in a new coalition.

The two parties attracted the most support from the under-30s, in an election dominated by climate change and by differing proposals on how to tackle it. The Greens made history with almost 15% of the vote, even though it was well short of their ambitions.

It was the tightest race in years, bringing an end to the post-war domination of the two big parties - Mr Scholz's SPD and his rival's conservative Christian Democratic Union (CDU). For the centre-left it was a significant improvement on the last election, but for the conservatives it was their worst ever performance.

Exit polls predicted a dead heat, but this election was unpredictable from the start, and the result was never going to be the end of the story. For one thing, the outgoing chancellor is going nowhere until the coalition is formed - and that may have to wait until Christmas.

The successor's task is to lead Europe's foremost economy over the next four years, with climate change at the top of voters' agenda.

Mr Scholz's SPD supporters greeted him in raptures, but it was only later when his party edged into the lead that he told a televised audience the voters had given him the job of forming a "good, pragmatic government for Germany".

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His conservative rival hit back, arguing it was about forging a coalition, not about getting "an arithmetic majority". Winner doesn't take all, in other words.

CDU General Secretary Paul Ziemiak did not gloss over the defeat early on Monday but said that was not the point: "In the end the question is going to be can you create a genuine project for the future?"

"Two maybe-chancellors and two kingmakers" - was one of the headlines summing up Sunday night's rather scrappy result, but that is what it looked like.

Because it's not just the Social Democrat and conservative leaders fighting for power. The two kingmakers are open to offers.

Together the liberals and the Greens make up over quarter of the vote and would carry both of the big parties over the line.

They may be more popular with younger voters than any other parties, but it would take some skill to bring them under the same roof.

Greens leader Annalena Baerbock wants to loosen Germany's debt brake that stops a big jump in public debt. FDP leader Christian Lindner has little time for her party's "ideas of tax hikes, or softening the debt brake".

So of all the possible coalitions, the Greens and the liberals feature in the two that are most likely to form.

One is the so-called traffic-light coalition, made up of the parties' colours - red (SPD), yellow (FDP) and the Greens - or there's the Jamaica alternative, black (CDU), yellow (FDP) and the Greens.

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It is the first time that Germany is facing a three-way coalition, but this country has entered a new political era and the talking is yet to begin.

Beyond the four mainstream parties, it was a bad night for the radical left and a patchy night for the far right.

Left-wing Die Linke fell below the 5% threshold required to get into parliament but survived because it secured three direct mandates.

And although the far-right AfD's share of the vote appears to have slipped nationally, it's set be the largest party in the eastern states of Saxony and Thuringia.