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Daily Briefing: Merkel's feet wet as populist tide rises
September 25, 2017 / 7:38 AM / a month ago

Daily Briefing: Merkel's feet wet as populist tide rises

LONDON (Reuters) - Angela Merkel may have survived to see through a new term as chancellor but even Europe's strongest leader has now suffered at the hands of an anti-establishment party able to mobilise a substantial minority of angry, alienated voters.

An official at the anti-immigration party Alternative fuer Deutschland (AfD) shows cake at the party headquarters before the announcement of first exit polls in the German general election (Bundestagswahl) in Berlin, Germany, September 24, 2017. REUTERS/Wolfgang Rattay

Although it could have been worse for her, the decision in 2015 to allow in hundreds of thousands of mostly Middle Eastern migrants has taken a political toll - and one that she did not hesitate to acknowledge last night. The focus of the coming weeks now will be to better grasp what all this means in terms of German policy both at home and abroad.

The far-right AfD has vowed to use its new parliamentary oomph to push anti-immigrant and anti-EU messages in opposition; at the same time, Merkel is pretty much obliged to turn to the eurosceptic FDP party as part of what could be an unwieldy coalition. The best she could promise last night was that she hopes to have a cabinet up and running by Christmas. In the meantime, efforts to put Europe on a more stable footing after last year’s Brexit vote will be on hold.

Talking of which ... Britain's Brexit negotiator David Davis returns to Brussels today for a new round of talks with his counterpart Michel Barnier. The EU welcomed what it saw as the more constructive tone of Theresa May's Florence speech on Friday but has in effect told her: "don't jump the gun". It still wants to see progress on its first set of demands (divorce bill, expat rights, Irish border) before it can go onto talk about future ties with the UK and even May's 2-year transition phase - the key take-home for business from her speech.

An October EU summit due to appraise British progress will now have the added complication that Merkel by then may well not know who her government is.

Christian Democratic Union CDU party leader and German Chancellor Angela Merkel reacts after winning the German general election (Bundestagswahl) in Berlin, Germany, September 24, 2017. REUTERS/Fabrizio Bensch

MARKETS

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The results of the German election are in, and as expected, Angela Merkel was re-elected as leader. What wasn’t expected was the surge in support for the anti-immigration far right party AfD, which markets have reacted negatively to. The euro is down, peripheral euro zone bond spreads have widened and euro zone stocks have opened lower.

The moves aren’t huge, but they reflect unease over AfD’s showing, the strength (and direction) of the coalition Merkel must now form, and what the election means for the Franco-German axis around which the euro zone revolves.

On the corporate front,  a steady news flow could move individual stocks: Unilever agreed to buy Carver Korea for 2.27 billion euros, Air Berlin's board of directors is due to discuss bids for the troubled airline, and the Italian government’s golden power committee meets to debate the influence of France's Vivendi on Telecom Italia.

In emerging markets, the MSCI emerging market benchmark is into the red for the third straight session, down 0.6 percent – the steepest daily decline in more than 6 weeks. Heavyweight Hong Kong shares tumble more than 1 percent and China mainland shares slip, led by property stocks after some cities imposed new housing controls to hose down an overheated market. Taiwan also shaves off 1 percent, South Korea eases 0.4 percent as investors square position ahead of national holidays later in the week.

Editing by Andrew Heavens

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