Odds and ends – especially in politics
Yields are higher, also in Europe. German election a possible driver? Yields across Europe shot up today from very low levels, part of which is obviously a reaction to improved sentiment. But as well, we are inching closer to the German general election in just over a month’s time on September 26, and the polls are showing a remarkable volatility, with the SPD gaining sharply over the last couple of weeks to within striking distance of the CDU/CSU bloc, as the latter polls near the lowest for the cycle. Could we be headed for left of center outcome led by the SPD? This would look similar to the Green scenario we had looked at previously, with a strong commitment to the EU and more fiscal, but the maths for building a majority coalition (possible in Germany to have a minority government, but there hasn’t been one since the war) even if the SPD and Greens look like easy coalition partners, as they are polling below 40%. The liberal FDP is an awkward fit, while the far-left “Die Linke” may not object to a minority government, but the SPD-Greens-Die Linke might not have enough seats for a majority. Stay tuned.
Canada’s polls tighten – so far, Labor PM Trudeau’s gambit to call very early elections at what he perceived as an opportune moment to seize a majority is backfiring. Some of the most recent polls suggest the race is tightening to a dead heat. The opposition is hammering on housing affordability and budget concerns. At the margin, a shock reversal could prove a modest CAD boost as the Conservatives are likely more supportive of natural resource development, but even the Conservatives this time around are touting their climate plans after remarkable weather episodes in Canada this year.
Sweden’s Prime Minister Löfven to retire in November – this was a surprise move at the weekend, but Sweden’s political blocs are finely balanced and it took forever for this weak government to form after the 2018 election and some other weak coalition of either stripe not far from the consensus-seeking country’s center is the likely outcome even if elections are called. SEK is stronger today, not on this development but on the strong boost from risk sentiment just after EURSEK was boosted above the key 10.30 area late last week. The pair needs to crush back below 10.20 to suggest a full reversal.
Table: FX Board of G10 and CNH trend evolution and strength
Too early after this reversal to suggest an end to prior trends – but interesting to note the weak participation from sterling today in the change of temperature.