Mixed market reactions across European indices
European equity markets started the new week with mixed results. The Germany 40 (DAX 40) rose by over 1%, while the France 40 (CAC 40) fell by 0.6%. Meanwhile, London and the FTSE 100 enjoyed a long weekend due to the May Day public holiday.
German political landscape shifts with new coalition
In Germany, the conservative-led coalition finalised its agreement, paving the way for Christian Democratic Union (CDU) leader Friedrich Merz to be sworn in as chancellor later today, following the German election in late February.
The coalition between the CDU/Christian Social Union (CSU) and the Social Democratic Party (SPD) plans to stimulate economic growth, increase defence spending, tighten migration policies, and modernise infrastructure.
Economic factors driving market movements
The prospect of stronger economic growth along with easing concerns over United States (US) dollar tariffs, particularly following reports of potential relief for the auto industry, has contributed to the revival of the German stock market. Notably, the rally has occurred despite first quarter (Q1) 2025 gross domestic product (GDP) data last week showing the German economy contracted by 0.2% year-on-year (YoY), marking the seventh consecutive quarter of recession.
In contrast, the most recent GDP report in the United Kingdom (UK) showed expansion of 0.6% in the three months to February 2025, the strongest increase since the three months leading to May 2024. This, along with the high probability of another Bank of England (BoE) 25 basis point (bp) interest rate cut this week, has been behind the FTSE’s record 15 consecutive days of gains.
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