Upcoming German Elections

Mark your calendar, we are less than 5 months away from the German Bundestag elections to be held on September 24, 2017. Will Angela Merkel remain at the helm of the 5^th largest world economy and engine of the European Union? What should you expect with Euro? DAX30?
The Election Process Explained
The electoral process in Germany is in one word “complicated”- each eligible voter has two votes.

The left side of the ballot is where the voter will choose his or her local candidate, known as the first-vote. The right side is to choose the party they want to support, known as the second-vote. Each of Germany’s 299 districts will send a representative to the Bundestag based on the first-vote. This is where things get complicated, so I’ll be simplifying it a bit. The rest of the Bundestag’s base number of 598 seats are allocated on the percentage of the second-vote received nationwide. In addition only parties that surpass the five percent threshold on the second-vote are allowed to send representatives to Berlin. It is this percentage that will be announced on election night, thus the total number of representatives can vary between 598 and theoretical 700.

 

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Since 1949 the German political landscape has been dominated by two parties, although neither Christian Democrats nor Social Democrats have won a majority in this time. The last election in 2013 saw the two forming a coalition. Angela Merkel is the head of the Christian Democrats and current Chancellor of Germany since 2005.

Current Polling
Polling published in Bild newspaper on May 3^rd shows the Christian Democrats with 34 percent, while the Social Democrats edging lower at 28.5 percent of eligible voters. While unlikely, it’s possible we’ll see Angela Merkel out of the Chancellery. A sizeable minority of people are unhappy of her handling of the refugee crisis and general desire for new blood in Germany’s top post. Martin Schulz, the Social Democrats candidate might be just the individual to dethrone Merkel. Mr. Schulz the former President of the European Parliament was unknown in local politics until several months ago. Although he eschews the term “populist”, his centric views are expressed with renewed vigor and general likeability.

EURUSD
source: GOMarkets MT4 Daily Chart View

The last time we witnessed a German election in late September 2013, EURUSD saw very little movement.

Source: GOMarkets MT4 Daily Chart View

Fast forward to present day, time has not been kind to EUR over the last four years. EUR is in an upswing at the current time. Will Brexit and further weakening of USD return EUR to 2013 rates？

DAX30
Source: GOMarkets MT4 Daily Chart View

DAX30 was in quite the slump pre-election, staying relative stable until mid-October then exploding into a yearly high in December.

Source: GOMarkets MT4 Daily Chart View

The last few months have seen DAX30 rebounding from the lows of December. As we go into summer will we continue to see sustained growth, or a lapse into lower numbers?
Unlike the recent uncertainty around the Dutch and French elections which impacted the markets , Germany will either begin another term with Chancellor Merkel or newly appointed Schulz, but the political orientation of Germany and its role in it is expected to be mostly unchanged.

-By Sam Hertz
     GO Markets

 

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