Insights 
VT 
German political developments stirred markets, especially after Merz failed to secure the chancellorship in the initial vote. He received 310 votes, short of the 316 required, despite the CDU/CSU/SPD coalition holding 328 MPs. The DAX initially dropped but began recovering after the AfD pushed for another vote.
Meanwhile, the Chinese State Council Information Office announced that officials, including the PBoC, would hold a press conference on financial policy to stabilise markets. This announcement led to a rally in Chinese stocks, as hopes grew for a robust stimulus package.
Focus on global meetings
The focus shifted towards the Trump-Carney meeting, scheduled for later that day, with trade headlines anticipated. With no major American data releases except the 10-year auction, attention was drawn to the trading dynamics.
Additionally, Switzerland’s unemployment rate for April remained steady at 2.8%, aligning with expectations. Eurozone and country-specific services PMIs showed varied results, with Italy and Spain performing above expectations, while Germany and France lagged. Gold continued its upward trend following increased bids in Asia, and forecasts emerged for a decline in USD/CNY by Goldman Sachs.
While German equities responded to political uncertainty in Berlin, the broader reaction implies market participants are recalibrating potential fiscal outcomes from coalition tensions. The CDU’s Merz falling short in the chancellor vote, despite his bloc nominally having the numbers, points to cracks in party unity or strategic withholding of support. That it rattled the DAX but was partially reversed after AfD’s intervention suggests investors are not anchored to the result itself, but rather to possible policy gridlocks or realignments that might follow.
The response in China was more direct. A coordinated communication effort from top officials, including the People’s Bank of China, reveals a willingness to pre-empt instability with market-friendly measures. The mere hint of supportive policy—made public with calculated timing—was enough to propel Chinese equities higher. We’re seeing how powerfully sentiment responds to centralised messaging, particularly when confidence has been thin. Here, actions are likely to follow the words given the visibility of the press event, which leans towards further monetary accommodation or regulatory easing.
Anticipating market reactions
Meanwhile, ahead of the Trump-Carney discussion, traders were positioning around the possibility of announcements with trade implications, made more prominent by the lack of hard US macro data on the day. With only the 10-year Treasury auction on the radar, there was room to move on rumour and expectation alone, particularly in currency and rate markets. This gap in data flow tends to amplify the importance of political or policy-oriented developments.
Switzerland’s consistent unemployment rate offers a stabilising point in otherwise reactive markets, though its impact is naturally limited given the economy’s scale. Flash services data across Europe was mixed—notably strong in the southern economies, likely helped by seasonal travel—but weaknesses in Germany and France hint at uneven demand conditions across the bloc. The divergence leaves room for targeted regional shifts in policy or commentary from ECB speakers, which could become more sensitive in upcoming sessions.
Gold remains firmly bid, seemingly extending its gains amid steady demand in Asia and soft underlying sentiment towards the dollar. Goldman Sachs’ view on a declining USD/CNY adds weight to this trajectory. If capital begins anticipating currency shifts tied to further Chinese stimulus, momentum in precious metals may accelerate. We would be watching CNY crosses closely to signal how far such expectations could embed across broader asset classes.
In the days ahead, there’s a clear opportunity to shift strategies to accommodate more reactive positioning—driven by policy cues and sentiment swings—rather than lean on fundamental data, which remains relatively light in key markets. With that, implied volatility across interest rate and FX products may rise, particularly around scheduled appearances or press briefings. We’re seeing the early signs already.
