How will German elections impact the DAX? Three scenarios to watch

Below, we explore the possible implications for the DAX under coalitions led by each of the three leading parties...

Germany

As readers may already know, Germans head to the polls on Sunday September 26 to elect a new Bundestag, or federal parliament. In all likelihood, two or three parties will have to form a coalition after the initial results to decide who will succeed Angela Merkel, who is standing down after 16 years as chancellor.

*For more on what’s at stake generally, as well as background on the process and major candidates, see my colleague Rebecca Cattlin’s report “How to trade the German election 2021”

In the lead up to the hotly-contested election, we’ll share a series of articles analyzing how major markets may react under different scenarios. Last week we covered possible implications for the euro, and today we’ll delve into the potential impact on the DAX, Germany’s most-traded stock market index.

After more than a decade and a half of rule by Merkel’s conservative Christian Democratic Union / Christian Social Union (CDU/CSU) party, the polls are pointing to a tightly-contested race between the CDU/CSU, the center-left Social Democratic Party (SPD) and the liberal Green party:

Source: The Economist

Below, we explore the possible implications for the DAX under coalitions led by each of these three parties, though of course the coalition partner(s) will also have a major impact on policies and the market’s reaction:

1) An SPD-led coalition

With a marginal, but growing lead in the polls as we go to press, a coalition led by the center-left SPD is among the most likely scenarios. As a more left-leaning party than the established CDU/CSU, an SPD-led coalition could be a relatively bearish development for the DAX, as the party has advocated for raising minimum wages, raising taxes, and supporting “labor” at the expense of “capital” at the margin. Of course, the likelihood of more liberal-leaning policies getting enacted will depend on the coalition partner(s) and their priorities.

2) A CDU/CSU-led coalition

Angela Merkel will be a tough act to follow, and that responsibility may well fall on Armin Laschet, the premier of North Rhine-Westphalia, Germany’s most populous state. With the CDU/CSU and SPD seemingly at odds after eight years of a coalition, a CDU/CSU victory later this month would likely result in a new coalition and a conservative shift in policy. All else equal, this may be a bullish outcome for the companies that make up the DAX, with a lower likelihood of higher taxes, additional regulations, and labor reforms.

3) A Green-led coalition

It’s said that markets absolutely hate uncertainty, and a victory by the left-leaning Green party, led by Annalena Baerbock, would certainly introduce a heavy dose of uncertainty into Germany’s politics. The party advocates for an ambitious climate-change policy, widespread public investment, and deeper European integration, all of which could increase costs for German businesses. Therefore, a Green-led coalition could well be the most bearish election result for the DAX, and one that should have bullish traders keeping a close eye on the polls in the coming weeks.

While the above outlines three different high-level scenarios to watch, along with the potential implications for the DAX, there are countless permutations of coalitions that traders will have to sift through in the wake of the election.

Be sure to stay tuned for more our analysis and any relevant updates in the final stretch before, and initial reaction after, this month’s highly-anticipated election results!

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

More from DAX

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.