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Germany readying for new elections? Stocks higher ahead of US open

Summary:

  • German ruling coalition under threat
  • Reports the SPD is preparing for new elections
  • DE30 bounces from recent lows; US higher ahead of cash open

Political developments have been one of the big driving forces on European markets in recent months with the situation in Italy weighing on risk sentiment and the latest news out of Germany could represent another potential threat. According to reports in the Spiegel, Germany’s SPF party is preparing for new elections, presumably as they expect the Merkel coalition government to collapse. 

SPD strategists are said to be citing early September as the earliest that a new vote could take place, which would be around a year since the last general election. There was a prolonged period of political stalemate after the 2017 election, which eventually saw Angela Merkel’s CDU party join forces with the SPD in late November to form a "grand coalition". If these reports are proven true then they represent a potentially big source of political instability in the EU’s largest and most powerful economy. Having said that, the markets don’t seem to be too interested in the news with the Euro fairly mixed on the day and the DE30 in the green.

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 DE30.cash is higher today but the market remains below the prior swing level of 12620 and unless this can be recaptured then a break lower may occur. Source: xStation

Turning our attention to the US, and there’s green seen in most market ahead of the Wall Street open. The US100 in particular is of interest with the market making another all-time high during yesterday’s session, boosted by the performance of FANG stocks. The rise in Facebook, Amazon, Netflix and Alphabet has been quite incredible with the 4 stocks now accounting for more than 40% of the US100. Looking at the RSI of these, all of them are in overbought territory too, with readings seen above 70 for this indicator. 

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 FANG stocks all moved into overbought territory yesterday for the first time since January 2017. Combined they account for more than 40% of the Nasdaq (US100 on xStation)

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 Looking at the US100 chart the market may have printed a reversal signal on Thursday, with the move higher into uncharted territory being met with some firm selling and a bearish engulfing candle printed on D1.  

 

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