GERMANY: CDU & SPD Can Form 'Grand Coalition'; Path Open For Debt Brake Reform
Feb-24 09:39
In line with expectations, the conservative Christian Democratic Union (CDU) and its allies in the Christian Social Union have secured a plurality in the Bundestag with 208 of 630 seats in the 23 February federal election. The CDU is now in a strong position to form a 'grand coalition' with the centre-left Social Democrats (SPD). The SPD fell from first to third place, enduring its worst-ever post-war election result winning just 120 seats (down 86).
- A prospective 'GroKo' would carry 328 seats, above the 315 majority threshold. It would be the smallest grand coalition to govern Germany, but for CDU leader Friedrich Merz a narrow majority is likely preferable to a tripartite 'Kenya' coalition that includes the environmentalist Greens (85 seats, down 33).
- The most notable outcomes of the election came on the extreme wings of the political spectrum. The far-right Alternative for Germany (AfD) scored its best-ever result with 152 seats on 20.8% of the vote. This was widely expected, with a strong AfD performance indicated in opinion polls in the months leading up to the campaign. On the other side of the spectrum, the far-left progressive Die Linke (The Left) exceeded expectations, securing 64 seats on 8.8% of the vote.
- Focus during the vote count was on the prospect of a 'blocking minority' forming opposed to debt brake reform. One-third (210) seats needed to block. The AfD is anti-reform. Die Linke is opposed to funds being used for military spending. However, Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a reform amendment.
- The far-left nationalist Sahra Wagenknecht Alliance (BSW) secured 4.97% of the vote, failing to cross the 5% threshold by the narrowest of margins. The pro-business liberal Free Democrats also fell out of the Bundestag, losing all 91 of its seats after winning just 4.3% of the vote.
Chart 1. 2025 Federal Election Result, Seats
Source: Federal Returning Officer, MNI
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
Jan-24 23:15
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.615/851 - High Dec 31 / High Dec 11
- PRICE: 95.510 @ 15:51 GMT Jan 24
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851, and has traded through the Dec low. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: MNI Fed Preview-Jan 2025: Keeping Rate Cut Hope Alive
Jan-24 21:35
We've just published our preview of the January FOMC meeting:
- The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts.
- The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage.
- With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier.
- As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle.
- While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact.
- Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid.
Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Jan 27
MACRO ANALYSIS: MNI US Macro Weekly: Fed Remains Firmly On Track To Hold
Jan-24 21:34
- Data in the week ahead of the January Fed meeting was thin and overall mixed, with President Trump’s apparently softer tone on tariffs helping implied rates soften slightly toward end-week.
- January’s preliminary Services PMI reading unexpectedly fell to its lowest since April 2024, though had some slightly less dovish details.
- Weekly continuing claims provided a surprise on the weak side, just exceeding recent highs, but the broad report (including initial claims a touch higher than expected) didn’t materially change the story of firms dampening down on re-hiring rather than turning to layoffs to manage headcount.
- Looking ahead to next week, the FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings. With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference.
- He won't totally rule out a cut at the next meeting in March, but he’ll probably reiterate that the Fed can remain patient on its next move until receiving more clarity on both inflation data and the government policy outlook (i.e. not until later in the year). Markets continue to price between 1 and 2 cuts by end-2025.
- Aside from Tuesday’s preliminary durable goods report, data for the coming week is backloaded with the highlights being the first estimate of real GDP growth in Q4 on Thursday before the monthly PCE report for December on Friday.
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