Main topics of the day in European markets: Merkel’s victory and the triumph of the AfD, the weakening of the Euro and rising oil prices, the continuing disagreement on the issue of Brexit

Leading stock indexes of Europe on Monday move in different directions against the background of understanding by investors of the results of parliamentary elections in Germany.

According to the final party Alliance CDU/CSU headed has retained the seat of Chancellor Angela Merkel has not lost the leading position, with 33% of the vote and received 246 seats in the Bundestag. However, this was the worst result of the Alliance since 1949. The social democratic party of Germany (SPD) led by the main opponent of Merkel – Martin Schulz received 20.5% of the vote (153 seats in Parliament), but also achieved the worst result in history.

Right-wing party “Alternative for Germany” (AfD) – for the first time passed in the Bundestag with 12.6% of the vote, becoming the third largest party in Parliament (94). Also in the lower house included the Liberal Free democratic party – 10.7% (80 seats), the “Left” – 9.2% (69 seats) and “Green” – 8.9% (67 seats).

Thus, the winning Alliance will not only build a coalition to form a government (this was the expected result), but also to defend their positions in a more fragmented Parliament. For the election of the Chancellor and the formation of the government requires a parliamentary majority of 355 deputies out of 709. According to experts, the most acceptable for the CDU/CSU option is to form a coalition involving the Green party and Free democratic party. While the SPD and its leader Martin Schulz will probably have to go into opposition.

By 15:25 GMT the pan-European Stoxx Europe 600 rose by 0.2% in comparison with level of Friday’s close after the morning decline of 0.1%. The British FTSE-100 to the current time fell by 0.2%, the German DAX rose 0.2%, France’s CAC 40 declined 0.25%.

Among the worst hit bonds were the shares of companies of the municipal sector that is linked with the decisions of the leading analysts on the lowering of the investment rating of several of the largest representatives of the industry. In particular, shares in German energy company Rwe fell by 4.5%.

Banking sector shares also look worse than the market. The capitalization of German banks Commerzbank and Deutsche Bank decreased by 1.5% and 1%, respectively.

Among the leaders increase were shares of German airline Lufthansa (+1.6%), assisted with news about the readiness of the company to pay 200 million EUR purchase of the assets of the bankrupt airline AirBerlin.

Shares of British oil company Tullow Oil increased by 5.2% on expectations that the company will resume drilling in 10 oil fields, previously frozen.

The Brent oil price to the current time has reached us $ 57.6 per barrel., having risen 1.4% in comparison with level of Friday’s close. According to experts, investors hope the extension of the Memorandum on the freezing of oil production after the first quarter of 2018, despite the fact that during last week’s meeting of the monitoring Committee of OPEC+ any new decisions had been taken. A positive factor was the fact that Libya and Nigeria announced its readiness to freeze or even cut production if necessary. At the moment, both countries do not participate in the transaction on a “freeze” and have the opportunity to increase production without restrictions. The next OPEC summit+ on which a decision will be made about extending the deal and the accession of new members will take place in November.

The Euro today fell by 0.7% in tandem with the U.S. dollar, reaching the level of 1.1866. “Despite the fact that the representation of the party “Alternative for Germany” in Parliament will not affect the country’s position in the EU in the foreseeable future, the increasing level of populism in politics affects the mood of investors,” says senior market analyst at LCG Irek Oscardata. According to her, it will be difficult to find buyers of EUR/USD above the level of 1.2000, and the decline of the Euro on the results of the German elections may continue in the short term.

Another important topic of the day is the resumption of negotiations between representatives of the UK and EU on the terms Brexit. On Friday, Prime Minister Theresa may confirmed that her country will leave the EU in March 2019, and declared the need for a transitional two-year period of implementation of the agreements with the EU. According to her, London is counting on the exchange of intelligence with the EU after Brexit, as well as offers to conclude a new strategic agreement in the field of security. However, in his speech, Theresa may failed to clarify what the British authorities meant by “new relationship” with the EU. Chief negotiator from the EU Brexit Michel Barnier said that no “solid” offers from the UK the EU can negotiate trade agreements and a two-year transition period.

Foreign Minister of Germany, Sigmar Gabriel, called the disappointing speech of the British Prime Minister, saying “the slow loss of time” in meaningless negotiations due to “games in the power between the British conservatives.” According to him, Britain could continue to enjoy the benefits of free trade with the EU, if it recognized the jurisdiction of the European court lifted restrictions on the labour market.

In addition, between London and the EU have not resolved disagreements about the sizes of payments of great Britain in favor of the EU after Brexit. Last week the Times newspaper, citing two sources in Brussels said that the British government is ready to pay 40 billion pounds to the European Union to cover the deficit in the EU budget arising in 2019 in connection with the stop of direct payments in the overall budget from the UK. Previously, the newspaper The Financial Times called a lower figure of 20 billion euros. British Minister of UK leaving EU David Davis on Sunday denied the reports, but the specific amount of compensation was not called.

On Friday, the international rating Agency Moody’s downgraded the sovereign rating of the UK from “Aa1” to “Aa2” and changed the rating Outlook from “negative” to “stable”. On the decision of the Agency was influenced by the possible consequences of a British exit from the EU, including convincing the British government’s plans on fiscal consolidation and an expected increase in the debt burden of the country. According to the forecast Moody’s, this year the national debt of the UK will be close to around 90% of GDP in 2019 will reach 93% of GDP. In terms of the removal of the UK from the EU single market and customs Union the country’s economic growth could slow in the medium term, Moody’s believe in. As expected, in 2017 the pace of UK GDP growth will be 1.5%, but will slow to 1.0% in 2018.

Prepared using materials MarketWatch and CNBC.

Main topics of the day in European markets: Merkel’s victory and the triumph of the AfD, the weakening of the Euro and rising oil prices, the continuing disagreement on the issue of Brexit 25.09.2017

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