Investors are bracing themselves for the fallout from a highly unpredictable German election this weekend, with some analysts saying that Europe’s bond markets are already hinting at a political shift in the region’s largest economy.
Sunday’s vote remains wide open, leaving fund managers reluctant to make firm bets on the dizzying array of potential coalitions that could take months of post-election horse-trading to form. Even so, a late surge by the Social Democrats in the polls has left investors anticipating a left-leaning governing alliance. This could usher in a more free-spending era in Berlin that breaks with the emphasis on debt reduction that characterised Angela Merkel’s 16 years in power.
“I think there’s going to be a political shift whatever the outcome,” said Gareth Colesmith, head of global rates at Insight Investment. “The question for markets is how big.”