Global Political Volatility Isn’t Yet Over
This weekend saw a couple of surprises on the political front in both Europe and Asia. In Europe, German elections were held on Sunday and as many expected, Germany Chancellor Angela Merkel won re-election. But what wasn’t expected was the strong showing by Populist Party, AfD, or Alternative for Deutschland. The AfD party took 94 of 709 available seats with a close to 13% vote nationwide, and this complicates matters for Chancellor Merkel’s Christian Democrat party to form a majority coalition. The center-left Social Democrat party with which the CDU has been allied as part of the ‘grand coalition’ decided to return to opposition after the party’s worst election showing since 1945. At this stage, hopes are that Chancellor Merkel will be able to build an alliance with the minority parties of the ‘FDP’ and ‘Greens’ as part of a “Jamaica Coalition†(due to the party’s colors mirroring the colors of the Jamaican flag). This could take months, and if it doesn’t take place at all – we could be heading for another round of elections in Germany.
In Japan – Prime Minister Shinzo Abe announced early general elections. This is an apparent strategy in which Mr. Abe looking to consolidate power as anxiety around North Korea continues to build within the country. Mr. Abe has been looking to revise Japan’s pacifist Constitution that’s been in effect since it was enacted by the United States in 1947, and as opposition has begun to build from a new party started by popular Tokyo Governor, Yuriko Koike; Mr. Abe may need to fend off threats to his Liberal Democrat party. Given that his approval rating has seen a recent bump around the anxiety emanating from the North Korean situation, this could give Mr. Abe an extra drive of support ahead of his campaign for a third term as Japanese Prime Minister.
Risk markets, for all of the weekend’s political volatility, have been fairly quiet so far. USD/JPY gapped-higher on the open, but that gap was quickly filled in the hours following and prices remain above the psychological 112.00 level.
