Please see below, an article from Brooks Macdonald providing a brief analysis on the key factors currently affecting global investment markets. Received this morning – 21/02/2025
What has happened?
It seems that bullish markets have taken a pause after the MSCI All Country World Index hit a fresh record closing high on Tuesday this week in total return US dollar terms. A few things are driving that perceived pause in sentiment – among them is the upcoming German federal election on Sunday – though a weaker-than-expected growth outlook from US retailer Walmart also dampened the mood yesterday. Of note, yesterday also saw Gold close at a fresh record high of US$2,939 per ounce.
German election expectations
The first exit polls will land on Sunday afternoon at 5pm UK time. Currently, political website Politico’s polling average has the conservative CDU/CSU bloc in the lead on 30%, followed by the far-right AfD on 21%, with Chancellor Scholz’s centre-left SPD on 16%, the Greens on 13%, and smaller parties below that, such as the free-market FDP on 5%. A coalition between parties of some description is all-but-certain to be needed to form a working government majority, but as for whether the far-right AfD might be included remains long-odds for now.
Japan inflation
Data out earlier this morning showed Japan’s Consumer Price Index (CPI) annual inflation rate hitting a two-year high of 4% in January, and up from +3.6% in December. So-called annual “core-core CPI” (which in Japan excludes both fresh food and energy) was up at 2.5%. Markets are now pricing in an 84% chance of a 25-basis points interest rate hike at the Bank of Japan’s July meeting, up from a 70% chance at the start of the month.
What does Brooks Macdonald think?
There is a lot riding on the German election result this weekend. German government spending in particular is the focus for markets, and whether the next government can eventually muster the necessary two-thirds parliamentary vote majority to overturn the country’s so-called fiscal ‘debt brake’ (referring to a rule agreed in 2009 which restricts German annual structural deficits to 0.35% of Gross Domestic Product). Whether or not that is achieved, will have a bearing on expectations around economic growth and the wider outlook for risk assets, not just for Germany but for the wider European region as well.
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Alex Kitteringham
21st February 2025