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What’s happening: European stocks mostly ended in the red on Monday as investors responded to elections in Germany.
What happened: The change of government in Germany after Federal election voting concluded on Sunday boosted the DAX.
An acceleration in the Eurozone’s inflation rate kept investor sentiment in check.
Why it matters: The victory of the conservative alliance, comprising of the Christian Democratic Union (CDU) and the Christian Social Union (CSU), in Germany’s Federal election triggered a rally in the country’s stock market.
Germany’s conservatives led by Friedrich Merz won the elections, securing more than 28% of the votes to win 208 seats, while outgoing Chancellor Olaf Scholz’s SPD faced a historic low at 16% of the vote share.
Europe’s biggest economy had been reeling under political instability for several months. Although there is uncertainty around whether the new government would be able to deliver the fiscal reforms needed to rekindle economic growth, investor sentiment was supported by hopes of a fresh start.
Meanwhile, the Ifo Business Climate indicator for Germany came in unchanged at 85.2, falling short of market expectations of 85.8.
The Eurozone’s inflation rate accelerated to 2.5% in January, from 2.4% in the previous month. While the figure came in-line with market expectations, it marked the highest inflation rate since July 2024 and was driven by a sharp rise in energy costs.
Germany’s DAX rose by 0.62% to settle at 22,425.93 on Monday. The Stoxx 600 fell 0.08% to 553.39, while France’s CAC 40 shed 0.78% to close at 8,084.44.
What to watch: EU leaders are set to hold a summit on March 6 to discuss Europe’s security and the support to be provided to Ukraine.
Investors will also monitor Germany’s consumer confidence indicator, scheduled for release on Wednesday as well as Eurozone’s economic sentiment, consumer confidence, industrial sentiment and services sentiment data, scheduled for Thursday.
Context: The CAD/USD rose slightly on Monday, adding to gains after the US President delayed tariffs on exports from the country.
Details: The CAD/USD had hit a 22-year low on February 3 on concerns around US President Donald Trump’s trade tariff threats.
The Canadian dollar steadied versus the US dollar in early trading on Monday, as investors awaited greater clarity on US trade tariffs. The forex pair rose as the day progressed.
A rise in the price of crude oil, one of Canada’s major exports, supported the loonie. WTI rose by 0.68% to $70.88 on Monday, after the US threatened to impose tariffs on Iran.
Gains for the CAD/USD forex pair were limited by a rise in the US dollar. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.08% to 106.70 on Monday.
Speculations remained divided on whether the Bank of Canada will announce a cut in its benchmark interest rates at its upcoming meeting on March 12.
The CAD/USD pair rose by 0.9% to 106.71 on Monday. The forex pair has lost around 0.59% over the past month.
What to watch: Investors will continue monitoring comments by Bank of Canada’s officials for any indication of whether policymakers are leaning towards a rate cut.
Markets will also watch updates around Canada’s attempts to convince the US of its measures to increase border security ahead of the March 4 deadline, to thwart the looming tariff threat.
Canada is scheduled to report its manufacturing sales data today (17:30 UAE Time). Manufacturing sales in the country grew by 0.3% in December, decelerating from 0.7% in the previous month and coming in below market estimates of 0.6%.
Other Markets: US trading indices closed mostly lower on Monday, with the Dow Jones index up 0.08% and the S&P 500 and Nasdaq 100 down by 0.50% and 1.21%, respectively.
The US voted against a UN General Assembly draft resolution calling for a ceasefire and a peaceful end to the war, while countries like India, China, Iran, Iraq, Saudi Arabia, South Africa, and the UAE abstained from voting. The news sent the RUB/USD pair higher in forex trading this morning.
South Korea’s central bank cut its base rate by 25 bps to 2.75% at its latest meeting, after keeping the rate unchanged in January. This being the third rate cut in four months exerted pressure on the KRW/USD forex pair.
Thailand’s trade deficit contracted to $1.88 billion in January, from $2.76 billion in the year-ago month. Although the figure came in slightly better than market expectations of a $1.9 billion gap, this being the fourth consecutive month of deficit sent the THB/USD pair lower in forex trading this morning.
Israel’s central bank kept its benchmark interest rate unchanged at 4.5%, in-line with market expectations, lending some support to the ILS/USD forex pair.
Belgium’s business confidence indicator came in at -12.3 in February, rising from -13.6 in the previous month. Despite remaining negative, this being the second consecutive month of improvement sent the EUR/USD pair higher in forex trading this morning.
Taiwan’s industrial production and retail sales (12:00 UAE Time), Hong Kong’s balance of trade (12:30 UAE Time), Iceland’s PPI (13:00 UAE Time) and average weekly earnings (15:00 UAE Time), US house price index (18:00 UAE Time) and consumer confidence index (19:00 UAE Time), and Mexico’s current account (19:00 UAE Time).
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