European stocks edged up and Wall Street futures pointed to early gains as investors digested the outcome of the election in Germany, with apparent relief that the far-left Linke party failed to secure enough votes to enter Parliament and so boosting the likelihood of a more centrist ruling coalition.
Germany’s blue-chip DAX was up 137.10 points, or 0.88 percent, as of 4:32 a.m. New York time on Sept. 27, while the pan-European STOXX 600 index added 1.26 points, or 0.28 percent, in early trading.
Elsewhere in Europe, Britain’s FTSE 100 was up 20.57 points, or 0.29 percent, while the French CAC 40 rose 40.53 points, or 0.61 percent as of 4:35 a.m. New York time.
In U.S.-focused markets, Nasdaq futures were down 25.75 points, or 0.17 percent, S&P 500 futures rose 9.25 points, or 0.21 percent, and Dow Jones futures gained 133.00 points, or 0.38 percent, as of 5:38 a.m. New York time.
Germany faces months of what are sure to be challenging negotiations to form a coalition government after the Sept. 26 federal election, with three parties needing to team up to clear the threshold of 50 percent of all seats in the Parliament.
Olaf Scholz’s center-left Social Democrats will seek to form a coalition with the Greens and the liberal Free Democrats (FDP) for what has been dubbed a “Traffic Light” coalition. At the same time, Christian Democrat candidate Armin Laschet has plans to try to form a government with the FDP and the Greens, making up what’s known as a “Jamaica” coalition, named for that country’s flag colors of black, yellow, and green.
“Both the Jamaica and Traffic Light options would produce continuity from the current government in terms of fiscal and EU policies. A Traffic Light coalition would be easier on both, but the difference from the current government would be modest. Hence, apart from a shift in a greener direction, the election likely signals continuity in broad terms,” Greg Fuzesi, economist at JPMorgan, told Reuters.
Morning market moves on Sept. 27 painted a picture of investor relief that the hard-left Linke party failed to win enough votes to get over the 5 percent threshold needed to enter Parliament.
Holger Schmieding, chief economist at Berenberg Bank, said in a research note that a coalition involving Linke, the Social Democrats, and the Greens could have “impaired trend growth through tax hikes, reform reversals and excessive regulations.”
Provisional results indicate the Social Democrats won 25.7 percent of the vote, ahead of 24.1 percent for the conservative bloc that includes the Christian Democrats. The Greens came in at 14.8 percent and the FDP obtained 11.5 percent.
