Spreadex Market Update
European indices edge lower as investors weigh up German election results.
European indices have edged lower during today’s session as investors weigh up the German election results. After 3-weeks of gains, indices have finally settled and are trading fairly range-bound. Whilst Angela Merkel’s Christian Democratic party won 41.5 percent of the vote, her Free Democratic allies failed to take any seats in the lower house of parliament. With the Social Democratic party making clear their reluctance to form a coalition, the negotiations between the two main parties may not be as smooth as people had hoped, which could force some market jitters. Negotiations to form German governments usually last from four to six weeks.
The Euro has approached a 7-month high versus the dollar. The currency has received a boost on the back of the fact that the most likely outcome of the elections is a coalition with the Social Democrats. Early indications would suggest that the new coalition would be somewhat more friendly to the peripheral nations in the currency bloc. Meanwhile, the dollar has suffered as a result of the on-going confusion regarding U.S. Federal Reserve tapering. Federal Open Market Committee voting member William C. Dudley is scheduled to speak today following comments from Bank of St. Louis President James Bullard indicating an October tapering is on the cards.
With fresh indications now pointing towards an October stimulus cut, banking shares have weighed on the FTSE 100. Concerns about the timing of an expected scaling-back of the Fed's quantitative easing programme took their toll on the UK banking index, which was off 0.5 percent. Banks were not helped by the fact that at the Labour party annual conference held in Brighton, Ed Balls, the man who could be chancellor if Labour wins the next election, made clear his plans to increase taxes on banks' balance sheets and introduce a levy on bankers' bonuses to pay for spending on childcare and job guarantees.
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