Market update: Grand coalition on the cards for Merkel? – 23.09.2013

Source: Henderson Global Investors

US equities finished lower on Friday (S&P 500 -0.7%; Dow Jones -1.2%) as two Federal Reserve (Fed) officials expressed their opinions about the US central bank’s decision to hold its asset purchases steady at last week’s policy meeting. St. Louis Fed bank President James Bullard said reductions could be made to curb bond-buying in October, while Kansas City Fed President Esther George criticised the decision for creating confusion. Trading volumes were higher than usual owing to stock index futures, stock index options, stock options and single stock futures expiring on the same day – something known as ‘quadruple witching’ – while the major US stock indices were also rebalanced. In other news, two initial public offerings from FireEye and Rocket Fuel were very well received, closing 80% and 93% higher on their debuts.

Despite a reassuring purchasing managers’ survey from HSBC overnight, which showed Chinese manufacturing at a six-month high in September, investors are still nervous following Bullard’s comments. The FTSE 100 and FTSE Eurofirst 300 are trying to break higher having opened in negative territory, and are currently down -0.03% and up 0.2%, respectively. In Germany, Chancellor Angela Merkel is celebrating after winning the federal elections this weekend. Merkel’s Christian Democratic Union, which acts in alliance with the Bavarian Christian Social Union, has won 41.5% of the vote, but the 311 seats they will occupy in the Bundestag is five shy of an outright majority. It is thought that Merkel will turn to the centre-left Social Democrats (SPD) to form a ‘grand coalition’ after the liberal Free Democrats (FDP), her former ally, failed to secure enough support to make it back into the Bundestag.