Here's Initial Market Analysts' Take on Merkel's Talks Failure

(Bloomberg) -- A collapse in German political talks to set up a coalition government triggered a swift reaction in the currency market, where the euro at one point fell the most in three weeks, though Asia-based analysts were less clear on the implications. 

German Chancellor Angela Merkel’s failure to reach a four-party deal to set up a new administration after September elections could send the country back to the polls -- the latest in a series of elections in Europe that have showcased rising anti-immigrant and anti-globalization sentiment.

Here are a selection of views on the implications of the news:

Hartmut Issel, head of equity and credit for the Asia-Pacific region at UBS Wealth Management:

  • “Markets are likely to take this in their stride” after the initial disappointment. “Even if there are re-elections, that is very unlikely to be populist. That’s why it’s going to be a limited down reaction.”

Peter Dragicevich, a currency strategist in Singapore at Nomura Holdings Inc.:

  • The “surprise” of the collapsed coalition talks, coupled with recent bounce back in the euro, should keep the currency under some pressure in the short term, particularly as other global trading centers react.
  • The longer-term outlook shouldn’t change, as it’s underpinned by the euro-zone’s positive dynamics.
  • November purchasing-manager indexes from the euro region, and minutes from the European Central Bank’s most recent meeting on Thursday should confirm the positive outlook.

Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo:

  • "There is no immediate impact to monetary policy, and there may be no fresh elections; the news may end up just providing temporary jitters."
  • "Given that there were some expectations that if a coalition was formed, the next Merkel regime would provide fiscal stimulus, the collapse in talks is negative for the German economy and what’s negative for Germany would be bad for the EU."

Greg McKenna, chief market strategist at CFD and FX provider AxiTrader in Sydney, wrote in a note to clients:

  • "It’s always difficult when you see moves like these in early Asia trade on a Monday to know if the reaction is likely to be overblown because of illiquidity or whether it’s an indicator of where European and North American traders will take the market when they get in."
  • "There is little doubt the jury is still out."

Mansoor Mohi-uddin, head of currency strategy in Singapore at NatWest Markets, a unit of Royal Bank of Scotland Group Plc.:

  • “The news is negative for the euro, but its longer-term implications aren’t clear yet.”
  • The euro could fall toward the bottom of its recent $1.15 to $1.20 range if the collapse in talks leads to new elections.

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