Euro, stocks slip after Germany’s Merkel hangs on to power

LONDON: The single currency and European stocks slipped on Monday after the bloc’s most powerful leader German Chancellor Angela Merkel won a fourth term but faced a fractured parliament as support for the far-right surged.

Investors were unnerved by the prospect of months of coalition talks which could distract from negotiations with Britain over its divorce from the European Union and efforts to integrate the bloc’s remaining members.

Political uncertainty also weakened the New Zealand dollar as the ruling National Party won the largest number votes in a weekend election but failed to secure a ruling majority, with a protracted period of coalition building now a possibility.

“Merkel’s most pressing task now is not to knit Europe closer together. It’s to form a coalition which will prove to be extremely difficult and time-consuming,” said Oliver Rakau, chief German economist at Oxford Economics.

The euro slid 0.3 per cent to $1.1918, putting more distance between a 2-1/2-year high of $1.2092 reached on Sept. 8, when a European Central Bank policy meeting left currency bulls optimistic the ECB would begin tapering its big stimulus programme.

Euro zone stock markets were down 0.3 per cent, although falls were more pronounced in Asia where equity markets were hit by concerns over the economic health of the world’s second biggest economy China.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last down 0.8 per cent.

Hong Kong’s Hang Seng was down 1.3 per cent and Shanghai slipped 0.4 per cent after a number of Chinese cities rolled out new measures to cool housing prices.

Investor sentiment was also undermined by concerns that China’s beefed-up environmental protection could reduce demand, and consequently economic growth.

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In European debt markets, the focus was firmly on the German election where the anti-immigration Alternative for GermanĀ ..