The euro strengthened and European stock markets are set for a positive opening following the victory of Germany’s conservatives in the federal elections. Futures for the DAX Index, Euro STOXX 50, and the US markets surged in Asian trading. The euro saw its biggest gain in a month against the US dollar, outperforming all its Group of 10 counterparts, as conservative leader Friedrich Merz announced plans to quickly form a new government.
Merz’s swift action following Sunday’s win reassured investors that political stability was on the horizon, giving a boost to the euro. The outcome is seen as a positive market signal, with hopes that the new German government will inject more state spending to address economic slowdowns in Europe’s largest economy. However, experts caution that the policies of the new administration, particularly in dealing with ongoing geopolitical challenges like Russia’s war in Ukraine and US protectionism, will be critical.
“It’s essentially a market-friendly result,” said Jeremy Stretch, chief international strategist at Canadian Imperial Bank of Commerce. “But investors remain cautious, as the fiscal landscape will be a key focus for the new government.”
In Asia, Chinese technology stocks paused after a directive from former President Donald Trump restricted Chinese investment in some strategic US sectors, a move aimed at curbing Beijing’s influence in critical industries. This marks the latest development in a broader US-China economic rivalry.
Despite the mixed performance in Asia, the optimistic European market outlook continues, fueled by expectations that the new German administration will pursue policies designed to counter the economic challenges facing the region. A significant element will be the government’s response to global trade tensions, particularly with the US.
Meanwhile, Treasury futures slipped as Asian markets remained quiet due to Japan’s holiday. The dollar weakened slightly, adding to the euro’s gains.
Corporate earnings season is also a focal point for investors, with Nvidia’s earnings report on Wednesday marking the beginning of a busy week for tech stocks. Analysts are betting that Nvidia’s results could signal renewed market volatility, with the potential to disrupt broader market trends.
On the geopolitical front, President Trump’s executive order aimed at limiting Chinese spending in key sectors such as technology and energy is a notable development. While not a formal law, the memorandum outlines guidelines designed to protect US security and economic interests, further heightening tensions between the world’s two largest economies.
In corporate news, Warren Buffett’s Berkshire Hathaway Inc. announced its intention to increase its stake in Japan’s five largest trading houses, signaling confidence in the country’s economic prospects.
Commodity markets showed mixed performance. Oil prices remained under pressure as concerns about potential increased supply from Iraq weighed on sentiment. Gold prices hovered just below last week’s all-time highs, buoyed by weak economic data and rising inflation expectations.
Key Market Events to Watch:
- Eurozone CPI (Monday)
- Israel Rate Decision (Monday)
- South Korea Rate Decision (Tuesday)
- US Consumer Confidence (Tuesday)
- Nvidia Earnings (Wednesday)
- G-20 Finance Ministers and Central Bank Governors’ Meeting (Feb. 27)
Market Movements:
- S&P 500 futures: +0.5%
- Nasdaq 100 futures: +0.5%
- Dow Jones futures: +0.5%
- Euro Stoxx 50 futures: +0.7%
- Euro: +0.5%, $1.0509
- Japanese yen: -0.1%, 149.43 per dollar
- British pound: +0.3%, $1.2666
- Gold: +0.1%, $2,939.23 an ounce
- WTI Crude: -0.2%, $70.25 per barrel
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