Closing post
Time for a recap…
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Apple has pledged to spend $500bn in US investments in the next four years, including a giant factory in Texas for artificial intelligence servers.
The plan will add around 20,000 research and development jobs across the country, with CEO Tim Cook saying Apple is “bullish on the future of American innovation”.
Donald Trump welcomed the move, saying Apple was making the investment because of “faith in what we are doing”.
But stocks fell on Wall Street, on concerns that the US economy may be slowing as Trump’s threatened tariffs hit confidence.
Shares had earlier rallied in Germany, as investors reacted to the news that the conservative CDU/CSU party had won last weekend’s election. A grand coalition with the centre-left SPD, keeping the far-right AfD out of power, seems likely.
There was also a flurry of takeover excitement in the City, with oil exploration/engineering firm John Wood confirming it had received an approach from the UAE’s Sidara.
Sky News reported that UK defence firm Chemring had recently received an approach from Bain Capital.
Many European markets have been dragged lower by today’s losses on Wall Street.
In London, the FTSE 100 index is now down 0.33%, while France’s CAC index is down 0.9%.
Germany’s earlier rally has been somewhat snuffed out, with the DAX index now only up 0.2%.
The recent weakness in US equities reflects concerns that US growth could be slowing significantly, reports Rupert Thompson, chief economist at asset manager IBOSS.
Thompson writes:
The weakness in US equities was triggered by an outbreak of concerns that, far from picking up speed if anything, US growth could actually be slowing significantly. The worries were triggered by a string of weak numbers – namely larger than expected declines in housing starts and retail sales in January and in business and consumer confidence in February.
Walmart added to the angst, warning of a slowdown in growth over the coming year. Finally, Musk was back in the headlines with his weekend email requiring government employees to justify their work over the past week or lose their job. The fear here is that his DOGE (Department of Government Efficiency) could indirectly lead to lay-offs of as much as a million.
Wall Street suffering more losses
Stocks in New York have fallen into the red in early trading, following the selloff at the end of last week.
The S&P 500 index, which slumped by 1.7% on Friday, is down another 0.44%, or 26 points, at 5,986 points.
The tech-focused Nasdaq index has lost almost 1%, with data firm Palantir down 10%, bitcoin-focused software firm MicroStrategy losing 5% and chip firms Intel and AMD down over 3% each.
Last Friday’s drop – the biggest in two months – was blamed on concerns that US business and consumer sentiment is deteriorating amid rising tariff uncertainty.
Mark Haefele, chief investment officer at UBS Global Wealth Management, predicts there’ll be more volatility this year:
“We see the S&P 500 rising to 6,600 by the end of the year, although the journey up is likely to be accompanied by heightened volatility. Portfolio diversification and hedging approaches are key, and we think capital preservation strategies can help manage drawdown risks in equities.”
Starbucks to cut 1,100 jobs and drop some items
Coffee chain Starbucks is cutting 1,100 corporate roles, as chairman and CEO Brian Niccol streamlines its operations.
In a letter to employees, Niccol says:
“We are simplifying our structure, removing layers and duplication and creating smaller, more nimble teams.
Our intent is to operate more efficiently, increase accountability, reduce complexity and drive better integration.”
Starbucks also says it is removing some of the less popular beverage options from its menu.
Updated
Just in: Wood Group have confirmed they have received an offer from Sidara, as rumoured earlier this afternoon.
They advise shareholders to take no action in relation to the Proposal, and caution that there’s no certainty that an offer will be made nor as to the terms of any such offer.
Shares in Apple have opened higher, having been down a little in pre-market trading.
Apple are up 0.85% at $247.62, as traders react to its major investment plan.
Updated
FT: Embattled Wood Group enters takeover talks with UAE’s Sidara
There’s a second flurry of takeover excitement in the City of London.
Oil services and engineering company John Wood has entered talks with Sidara about a potential takeover by the United Arab Emirates-based company, the Financial Times reports.
This has lifted John Wood’s share price by 30% to 34p, raising its value to around £240m.
That recovers some of its recent losses – the company’s value halved on 14th February after it predicted its free cashflow would be negative this year.
Awkwardly for John Wood, it rejected a £1.4bn takeover offer from Sidara last May, arguing that the bid “fundamentally undervalued” the company. That’s hard to defend, given Sidara were offering 205p per Wood share….
Wood Group has been in talks with lenders about refinancing its $1.26bn debt pile before some loans mature.
The crisis at Wood Group escalated last week when its chief financial officer, Arvind Balan, stepped down and admitted he had mis-described his accountancy qualifications.
Apple emphasises that today’s $500bn investment plan is its “largest-ever spend commitment”.
It also flags that it is one of the largest US taxpayers, having paid more than $75bn in US taxes over the past five years, including $19bn in 2024.
[In Europe, though, Apple was ordered to pay €13bn, plus interest, in unpaid Irish taxes from 2004–14]
Wall Street doesn’t seem to quite share Donald Trump’s enthusiasm about Apple’s investment splurge.
Shares in Apple are down 0.5% in pre-market trading, with just over an hour until Wall Street opens.
Apple plans Texas factory for AI servers
The new Apple Manufacturing Facility to be opened in Houston, Texas, will produce AI servers which are currently being made outside the US.
Apple says the new 250,000-square-foot facility is expected to open in 2026, and will create “thousands of jobs”.
The company adds:
Previously manufactured outside the U.S., the servers that will soon be assembled in Houston play a key role in powering Apple Intelligence, and are the foundation of Private Cloud Compute, which combines powerful AI processing with the most advanced security architecture ever deployed at scale for AI cloud computing. The servers bring together years of R&D by Apple engineers, and deliver the industry-leading security and performance of Apple silicon to the data center.
Apple says its new manufacturing academy in Detroit will help US companies transition to advanced manufacturing.
It says:
Apple engineers, along with experts from top universities such as Michigan State, will consult with small- and medium-sized businesses on implementing AI and smart manufacturing techniques.
The academy will also offer free in-person and online courses, with a skills development curriculum that teaches workers vital skills like project management and manufacturing process optimization. The courses will help drive productivity, efficiency, and quality in companies’ supply chains.
Trump: Thank you Tim Cook and Apple
Donald Trump has welcomed Apple’s plan to invest $500bn in its US operations over the next four years, and – predictably – wants the credit.
Writing on his Truth Social site, the US president says Apple was making the investment because of “faith in what we are doing”, before thanking the company.
BREAKING: Trump celebrates the announcement by @Apple that the company will be investing $500 billion in the U.S. Trump said the reason Apple is doing this is simply, 'faith in what we are doing, without which, they wouldn't be investing ten cents.' pic.twitter.com/hu8Iur2yxw
— Simon Ateba (@simonateba) February 24, 2025
Trump met with Apple’s CEO, Tim Cook, last week – after which he claimed Apple was planning to shift manufacturing from Mexico to the US, to avoid tariffs.
Apple announces plans to create 20,000 US jobs in $500bn investment splurge
Apple has announced a massive $500bn (£400bn) investment plan across the US over the next four years.
The tech giant is planning to hire around 20,000 people, of which the vast majority will be focused on R&D, silicon engineering, software development, and AI and machine learning.
Apple says it will expand its facilities, and hire more staff, in Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington.
The plan includes building a new factory in Texas, doubling the size of its US Advanced Manufacturing Fund, opening a manufacturing academy in Detroit, and accelerating its investments in AI and silicon engineering.
The move follows pressure from Donald Trump for US companies to invest more in their US facilities, and the threat of tariffs on imports from overseas.
Tim Cook, Apple’s CEO, says:
“We are bullish on the future of American innovation, and we’re proud to build on our long-standing U.S. investments with this $500 billion commitment to our country’s future.
“From doubling our Advanced Manufacturing Fund, to building advanced technology in Texas, we’re thrilled to expand our support for American manufacturing. And we’ll keep working with people and companies across this country to help write an extraordinary new chapter in the history of American innovation.”
Updated
Here’s a chart showing how the euro lost ground against the US dollar towards the end of last year, before a small pick-up this morning after the German election:
Sky News: Bain Capital targets £1bn listed defence group Chemring
Shares in UK defence company Chemring have suddenly jumped, following reports that it has received a takeover approach from private equity firm Bain Capital.
Sky News are reporting that in recent weeks Bain Capital has lodged at least one proposal to acquire Chemring, which manufacturers products used in defence kit and by organisations including Elon Musk’s SpaceX.
An initial bid “may have been tabled at 390p-a-share”, Sky adds. That would be around 9% more than Friday’s night’s closing price of 358p.
Shares in Chemring have jumped as high as 408p, up 15%, which suggests traders expect a higher offer.
Chemring designs, develops and manufactures “advanced expendable countermeasures” to protect aeroplanes, boats and land-based combat vehicles, supplying 85% of NATO air fleets and 60% of NATO naval fleets.
Chemring say they are also a “key supplier” to NASA, SpaceX and Martin-Baker, and supplied more than 230 parts on the Mars Perseverance mission.
In the energy sector, BP are reportedly poised to ditch a key green target later this week.
Reuters are reporting that BP’s chief executive, Murray Auchincloss, will scrap a target to increase renewable generation 20-fold by 2030 when he updates investors on the companies plans.
Reuters says:
On Wednesday, when BP holds a capital markets day, CEO Murray Auchincloss will tell investors the company is abandoning its target to grow renewable generation capacity 20-fold between 2019 and 2030 to 50 gigawatts, two sources close to the matter said.
The plan to drop the target has not been previously reported.
One big question is whether Germany’s next government can relax its fiscal rules sufficiently to lift defence spending.
Tom Bailey, head of research at HANetf, says:
“The centre-right Christian Democrat party emerged as the winners of Germany’s election. The expected next chancellor of Germany, Friedrich Merz, wasted no time in addressing Europe’s most pressing issue: defence. Merz was frank in his comments, arguing that the Trump government does “not care much about the fate of Europe” and speculated whether NATO will continue to exist in its current form.
“Such stark comments come following the Trump government raising serious doubts about the US’ continued commitment European security. Merz’s comments suggests the new Germany government is now serious about boosting defence spending to fill the gap potentially left by the US pivoting away from European defence.
“The next question will be whether the new coalition government in Germany can sufficiently loosen its fiscal rules to boost defence spending. Germany currently spends a little over 2% of GDP on defence. While this meets the 2% target set by NATO in 2014, it is increasingly seen as inadequate in the current geopolitical climate. Mark Rutte, the current head of NATO, has noted spending will have to go higher than 3%, while the Trump administration is demanding 5%.
But with the risk of US disengagement from Europe now so acute, this question moves beyond reaching pre-agreed spending targets and instead becomes: how Europe can develop the capability to defend itself without an American defence backstop?
Neil Shearing, group chief economist at Capital Economics, agrees that European governments are likely to face “significant pressure” to lift defence spending.
The head-spinning events of the past two weeks – including the suggestion last night by German Chancellor-elect Friedrich Mertz that Europe should seek “strategic independence” from the US – have led many to declare the end of the post-war trans-Atlantic alliance and the start of a new period of geopolitical realignment.
However, thinking through what “strategic independence” might mean in practice reveals the extent of the ties between the US and Europe. While the risks of a trans-Atlantic fissure have clearly increased, these ties will be difficult to sever altogether. The most likely outcome is that in four years’ time the US and Europe will remain geopolitically aligned.
The greatest consequence of the past week’s events from a macro perspective may be that European governments are going to face substantial pressure to significantly increase their defence spending.
Germany's MDAX index on track for best day in 14 months
Shares in medium-sized German companies are rallying harder this morning, as investors continue to welcome the prospect of a grand coalition between election winners CDU/CSU and the centre-left SPD.
The MDAX index, which tracks 50 German companies smaller than those in the blue-chip DAX index, is up 2.6% today – on track for its best day since mid-December 2023.
Nearly every stock on the MDAX is higher, with real estate, healthcare and technology the top rising sectors.
Traders seem to be calculating that companies on the MDAX will benefit from potential reforms, a recovery in German growth, and more political certainty.
The larger DAX index, which tracks Germany’s largest companies, is up almost 1%, faster than rival European indices.
Joshua Mahony, analyst at Scope Markets, says:
The DAX is leading the way in early trade today coming off the back of a weekend election that saw the CDU/CSU take first place despite a notable showing from the far right AfD party.
With the US pushing back against European interests, there is a desperate need for greater clarity and confidence in the German economy given its position at the head of the table in any trade negotiations. Notably, incoming Chancellor Merz has stated that Europe needs to become independent of the US, with Trump’s efforts to turn the tables on his allies bringing a greater need shift reliance away from the US when it comes to energy, trade, and military independence.
Trump appears to prioritise short-term economic benefits for the US over the desire to carry favour with nations that favour the US ethical standpoints. While this may ultimately prove beneficial for US economic growth, it does highlight a tough time ahead for US allies like Europe or Taiwan.
Updated
Euro dips back from one-month high
The euro has lost some of its initial vigour against the US dollar, and has now dipped back to $1.047, a little higher today.
Laura Cooper, head of macro credit and global investment strategist at investment firm Nuveen, suggests caution about how much the next German government will be able to change:
Despite a market friendly outcome, prevailing uncertainty on the fiscal front warrants caution. A meaningful change to the long-standing debt brake could remain elusive in the near-term with key barriers remaining – namely, enacting a change that is still amenable to fiscal hawks.
“The absence of a blocking minority for Constitutional reform is a welcome relief for markets anticipating debt-fueled fiscal spending in the near-term. Yet while pressure to strengthen defense independence could expedite the formation of a two-party ruling coalition and at the margin, improve the outlook for Europe, turning up the fiscal taps could prove more challenging.
Deutsche Bank chief urges 'fundamental reforms'
The boss of Deutsche Bank, Germany’s largest lender, is hoping that the country’s next government can crack on and fix the ailing economy.
Christian Sewing, who is also president of the association of German banks, says:
“Germany now needs a government that is able and willing to act - and quickly.
“The challenges facing our country are enormous: The economy urgently needs a fresh start with fundamental reforms.”
Christian Bruch, CEO of power equipment supplier Siemens Energy, hopes a coalition will be formed quickly so politicians can rebuild Germany’s competitiveness.
“Actions in energy policy are crucial for this.
The expansion of gas-fired power plants, the strengthening of wind energy, and the modernisation of electricity grids are essential, as is a secure supply of raw materials.”
This morning’s Ifo index doesn’t provide any boost for Germany’s incoming government, reports analysts at ING.
Carsten Brzeski, ING’s global head of macro, told clients:
Germany’s most prominent leading indicator, the Ifo index, just signalled that the next government cannot count on any cyclical tailwind, yet. Coming in at 85.2 in February, from 85.1 in January, the Ifo index suggests that the German economy is still in stagnation. The current assessment component weakened significantly (from 86.0 in January to 85.0 in February), while expectations improved somewhat.
Germany’s economic problems should be well-known by now. In the short run, possible US tariffs as well as increased energy prices should continue weighing on economic activity. At the same time, renewed geopolitical tensions and the US administration’s changed stance on defence and security in Europe are likely to weigh on consumer spending. This is why all eyes will now be on the upcoming coalition talks, hoping for some breakthrough and at least a confidence boost.
Updated
German companies have high hopes for the new government after the election, as shown by the Ifo Business Climate Index. While Ifo business expectations have improved, the assessment of current conditions has declined sharply, keeping the overall Ifo index unchanged at 85.2. pic.twitter.com/xEdqPQYDhM
— Holger Zschaepitz (@Schuldensuehner) February 24, 2025
German business morale stagnates
Germany’s next chancellor will inherit an economy where business morale is stagnating.
The latest gauge of corporate confidence, just released by the IFO thinktank, shows no improvement this month.
IFO’s business morale index was unchanged at 85.2 points, weaker than the 85.8 forecast by economists.
The current conditions measure weakened, suggesting German companies have struggled at the start of 2025, but business expectations rose.
We’ll have to wait a month for reaction to yesterday’s election, though.
Germany February IFO
— Mario Cavaggioni (@CavaggioniMario) February 24, 2025
Index 85.2 (est 85.8, last 85.2 from 85.1)
Current Assessment 85 (est 86.3, last 86 from 86.1)
Expectations 85.4 (est 85, last 84.3 from 84.2)
Survey made before elections, so uncertainty weighs on indices. IFO however continues to paint a bleak picture. pic.twitter.com/1vrtWwS1Yy
Back in London, share in discount retailer B&M have tumbled 8% after it cut its profit forecasts and announced the departure of its chief executive.
B&M blamed “an uncertain economic outlook” and a possible hit from exchange rate volatility on its stock valuations.
It now expects adjusted core earnings this year of between £605m and £625m, down from £620m-£650m before.
B&M also revealed change at the top – CEO Alex Russo will retire form the company on 30 April 2025.
Yesterday’s German election highlights that populism remains ascendant, says Bill Blain, market strategist at Wind Shift Capital Advisors.
Blain writes:
The electoral numbers show new, young voters are increasingly attracted to the populist parties, voting for the Left, the AfD or Greens. They have given up on the traditional parties. They vote according to how they hear and translate the political noise, and where they pick up their political affiliations and news. That’s the new battlefield for votes; social media and podcasts – it’s ground traditional parties just don’t know how to play.
He also cautions that less may change in Berlin now than investors hope:
The German elections highlight the dangers of coalition politics – swimming in a sea of treacle to agree policy choices as the likelihood of bad compromises rises.
Even as Trump and Ukraine roil and destabilises the European Union, Germany is set for the distinct possibility nothing much changes. It is not strong and stable leadership at a time when it is desperately needed.
https://t.co/8vOCmvHqje
— Bill Blain (@Bill_Blain) February 24, 2025
The German elections highlight the dangers of coalition politics – swimming in a sea of treacle to agree policy choices as the likelihood of bad compromises rises. Even as Trump and Ukraine roil and destabilises the European Union, Germany is set for the…
Defence stocks rally
Shares in some European weapons makers are rising in early trading too.
German tank maker Rheinmetall jumped 3% at the start of trading, while in London BAE Systems are up 1.7%.
This comes after Germany’s Friedrich Merz pledged to achieve “independence” from the United States, and to strengthen Europe, after winning the German election. That could herald a further increase in defence spending….
Updated
Hopes that last night’s victory by the CDU/CSU could help pull Germany out of economic stupor and help bolster collective defence, has lifted investor spirits today, reports Susannah Streeter, head of money and markets at Hargreaves Lansdown:
‘’A dose of more certainty has been injected into European politics, with the Germany’s Conservatives winning the elections. It comes at a crucial time for the continent. Three years on from the invasion of Ukraine, high stakes deal making between the US and Russia continues, Ukraine is out in the cold and the outcome will have huge implications for security in Europe.
There is a dawning realisation that European nations will have to pull together and present a more united deterrent force, and Friedrich Merz, the CDU leader, is reading from that script. He has pledged to relax fiscal rules, to increase defence spending and inject the economy with much needed investment. But while Merz seems determined to ease off the so-called debt brake, which limits annual borrowing to 0.35% of GDP, it won’t be straightforward, because he will need a two-third majority in parliament.
However, with Russia’s aggression set to stay an unrelenting black cloud, the recognition of the need to contribute more to NATO’s budget may see political factions pull together.
German carmakers rally
Shares in Germany’s auto industry giants are higher in early trading.
BMW jumped 2%, while Volkswagen gained more than 1.6%.
In other sectors, Deutsche Bank’s shares are up 1.2%, while software giant SAP are 0.44% higher.
MDAX index up 1.4%
Smaller German company stocks have also opened higher.
The MDAX index, which tracks medium-sized firms listed in Frankfurt, has jumped by 1.4% in early trading.
Germany's DAX rallies after election results
Germany’s blue-chip share index, the DAX, has jumped by more than 0.7% at the start of trading, as traders react to last night’s election results.
After a slightly slow open, the DAX gained 160 points to 22,448 points.
Jochen Stanzl, chief market analyst at CMC Markets, says investors welcome the prospect of a grand coalition in Germany, between the CDU/CSU and the SPD parties.
Stanzl explains:
Investor speculation has proven accurate: weeks ago, they anticipated that the new elections would lead to a more business-friendly government in Germany. The DAX’s rise at today’s opening suggests that this expectation has been confirmed. It appears that Chancellor Friedrich Merz now needs just one coalition partner—the SPD—to form a government. A Grand Coalition is currently viewed as the favorite, as it signifies stability and continuity.
While the long-term performance of the DAX is primarily driven by the international competitiveness of its listed companies, the current political outlook provides an additional incentive. Investors believe that Germany may soon have a government capable of initiating new growth impulses, thus bringing an end to the disputes that characterized the previous three-party coalition under the Ampel government.
Stanzl cautions, though, that caution is warranted:
Despite the optimism, the recent trend of profit-taking that began in the last two weeks could continue. The robust gains in the DAX this morning largely hinge on the perception that a coalition between the CDU/CSU and the SPD is the least problematic in addressing current challenges. At the same time, US President Donald Trump is likely to abandon his relatively gentle stance toward the EU and Germany soon. Whether the new government in Berlin can effectively navigate its relationship with Trump will become clearer in the coming weeks.
Friedrich Merz now faces the significant challenge of addressing a multitude of issues—from stagnant economic growth and Russia’s war in Ukraine to the looming threat of a global trade war, which could further burden Germany’s struggling industrial sector. Promptly tackling these challenges will be crucial for the new government’s success.”
Just Eat Takeaway to be taken over in €4bn deal
There’s also takeover excitement in Europe this morning, with investment group Prosus announcing a bid for Just Eat Takewaway.com.
Prosus says it plans to create a “European tech champion” of food delivery, and has made an all-cash offer to buy Just Eat’s shares, currently traded in Amsterdam, for €4.1bn.
The deal comes two months after Just Eat delisted from the London Stock Market, after a turbulent few years in which it merged with rival Takeaway.com, then agreed to buy the US-based app Grubhub for $7.3bn, only to sell it four years later for just $650m.
Just Eat’s shares have fallen over 85% over the last five years, as the surge early in the Covid-19 pandemic has faded.
Updated
Germany’s MDAX share index, which contains medium-sized, domestically focused companies, is on track to jump 1.25% when trading begins this morning, Reuters reports.
Deutsche Bank: concerned that grand coalition would not have a constitutional majority
Analysts at Deutsche Bank are hopeful that Germany will benefit from a “more effective government coalition in the next four years”.
But, they are also concerned that a grand coalition between the CDU/CSU and the SPD would not have a constitutional majority (two-thirds of seats) even if it allied with the Greens.
Deutsche say:
This means that any constitutional changes, including to the debt brake, would rely on the support of either the Left or the AfD. We believe this could be seen as a negative by markets in terms of reducing the likelihood of a decisive fiscal regime shift in Germany.
From a corporate perspective, too, it will hardly be reassuring that the centrist parties lack a constitutional majority.
Deutsche also predict that the crucial issue of defence spending will play a key role in the upcoming coalition talks:
In our view, Europe’s challenged security architecture makes it highly likely for CDU/CSU and SPD to agree on higher defence spending in principle, especially if outgoing Defence Minister Pistorius takes a leading role for the SPD in coalitions talks.
Updated
The euro and the European equity futures are in the green this Monday morning on relief that the German elections didn’t bring major surprises, reports Ipek Ozkardeskaya, senior analyst at Swissquote Bank:
Merz’ CDU/CSU won the election with around 28.5% of the votes – a good result for the center right though slightly weaker-than-expected, Olaf Scholz’ SPD gained around 16% of support – as expected, while the AfD amassed 20% of the votes.
The kneejerk reaction is a swift rebound of the euro and the equity futures on hope of higher spending by the new German government would tackle the economic weakness of past years.
Introduction: Euro hits one-month high after German election
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The euro has rallied this morning as European investors express relief over the outcome of Germany’s election – although this is mingled with anxiety over a slump on Wall Street at the end of last week.
The euro has climbed to a one-month high, after the centre-right CDU/CSU alliance came top of the German election, with 28.5% of the vote, meaning CDU leader Friedrich Merz will become Germany’s next chancellor – once he has agreed a coalition.
A grand coalition – with the SPD, which fell to third place with 16.4% – seems likely.
That would keep the far-right AfFD (20.8%) in opposition.
This has lifted the euro up t0 $1.0528 against the dollar, the highest since 27th January.
The single currency is also a little stronger against the pound, at almost 83p.
Euro up in early Asia trading on German election results. pic.twitter.com/sxEkGXhJq9
— 🇪🇺 🇲🇨🇨🇭Dan Popescu 🇫🇷🇮🇹🇷🇴 (@PopescuCo) February 24, 2025
Germany’s main stock market index, the DAX, is on track to jump almost 1% at the start of trading.
Analysts are hoping that the path to economic recovery, after several tough years for the German economy, could now be easier.
Kathleen Brooks, research director at XTB, explains:
This is a pivotal election for Germany, and it comes at a fragile time for the country as it battles economic malaise and domestic friction. A coalition between the two biggest German parties could be the most fruitful from an economic policy standpoint, since it may make it easier for Germany to reboot economic growth after 2 years of economic contraction.
The best way to do this is to ease restrictions on government borrowing to help spur the economy back to life. This will be much easier if you have the main parties as part of the coalition.
But, Germany would have to relax its ‘debt brake rules’ before it can radically increase borrowing – and there may not be enough support for such a move in the Bundestag.
Holger Schmieding of Berenberg points out that the AfD (152 seats) and The Left (64 seats) have won more than one third of the 630 seats and can thus veto any changes to the constitution.
Schmieding suggests this gives the “populist fringe” a fiscal veto”
AfD and The Left have little in common. But both these populist protest parties oppose aid to Ukraine. Most likely, the new government will not negotiate a change to the constitution (or any other issue) with the AfD.
Getting The Left to agree to a debt brake reform that is primarily needed to raise defence spending including more help for Ukraine could also be very difficult. The Left would like to ditch the debt brake. However, its agenda (soak the rich, spend more on welfare and less on defence) is the very opposite of the Merz agenda. Never say never, but finding room for compromise would be an uphill struggle, to put it mildly.
Our main German election liveblog will have full coverage of events today:
Elsewhere, traders are digesting Friday night’s drop in share values on Wall Street, after the latest survey of purchasing managers showed a slowdown in US company growth.
The S&P 500 sank 1.7% on Friday, for its worst day in two months.
The agenda
9am GMT: Bank of England’s 2025 BEAR Conference opened by deputy governor Clare Lombardelli
9am GMT: German IFO business confidence survey
10am GMT: eurozone inflation (final) for Jan
11am GMT: Bundesbank monthly report
6pm GMT: Speech by BoE policymaker Swati Dhingra at the Birkbeck Centre for Applied Macroeconomics ‘Bracing for turbulence: UK inflation and prospects for monetary policy’
