Today's data release
 Key levels
09.00EZ German IFO SupportResistance
14:00EZ Draghi speaks in Brussels1.34501.3616
Market overview

German election results showed German Chancellor Merkel is set for a 4th term after her CDU/CSU won the most votes, but performed weaker than expected and will need to undertake coalition discussions. Mrs Merkel overall did get the victory that she wanted as the election was always going to be purely about the coalition arithmetic and deals. The only worry for her and the euro area is whether her weaker performance will limit her ability to provide support to Macron, the French President. Macron turned to Merkel for support to strengthen the euro area with a new integration push.

This weekend also saw elections in New Zealand, which also ended in a similar way. The incumbent National Party took 46% of the vote, well ahead of the challenging Labour Party's 35.8%, but New Zealand's proportional representation system means neither won enough seats in parliament to govern alone. Coalition discussions are now taking place. The impact on NZD has been much more severe than the EUR, NZDUSD fell by 1%.

Prime Minister May delivered her eagerly awaited speech on the UK’s relationship with the EU from Florence on Friday. The speech did little to clarify what the PM was trying to achieve. In terms of Britain’s future trading relationship with the EU, Mrs May outlined that she was neither in favour of an arrangement which resembled the EEA (European Economic Area), nor that with Canada (the deal took the best part of eight years). The PM remarked that ‘We can do so much better than this’, suggesting that nobody sensible was contemplating imposing tariffs and that there was a need to be creative (she used the word ‘creative’ five times). But she also acknowledged that Britain could not benefit from single market membership ‘without its obligations’. Mrs May also confirmed that the UK is seeking a transition period of around two years after leaving the EU, during which arrangements would be similar, though not identical, to the current setup. She also did not provide any clarity of what the UK will seek as a financial settlement. Overall there was little in May’s speech to kick-start this week’s 4th round of UK/EU Brexit talks again.

Moody’s downgraded the UK’s sovereign rating on Friday night to Aa2 (stable) from Aa1 (negative). The ratings agency cited a deterioration in the outlook in the public finances and a Brexit related weakening in economic prospects for its decision. The decision did not have much of an impact on Sterling as Moody’s decision takes its UK rating to the same level as that of S&P and Fitch, which are both AA.

The day ahead

There is very little data to report on today. In Europe we have the German IFO out at 9am followed by a speech from ECB President Draghi at 2pm in Brussels. On the political front, Germany’s Merkel will comment on the election results. In the UK, the Labour party conference will begin, while the next round of Brexit talks between EU and the UK will also begin.

Thought of the day

Yesterday marked the start of the 3rd Invictus Games, held in Toronto, Canada. The Invictus Games, created by Prince Harry, is an international sporting event for the wounded, injured and sick service personnel. The word ‘Invictus’ means ‘unconquered’. It embodies the fighting spirit of the wounded, injured and sick service personnel and what these tenacious men and women can achieve, post-injury. The Games harness the power of sport to inspire recovery, support rehabilitation, and generate a wider understanding and respect for those who serve their country. Prince Harry opened the Games yesterday with an emotional speech, speaking out about what the competition means to not only him, but the competitors. On Friday, Theresa May conducted a speech of her own, where she set out the UK’s broad and key objectives in the Brexit process. Overall there was little in the PMs speech to kick-start this week’s negotiations, it is looking increasingly unlikely that next month’s EU Summit will conclude that the negotiations can move on from the first stage in the sequence, separation agreement, onto the next stage which discusses trade issues. For a full rundown of Theresa May’s speech please contact the Investec Dealing team on 0800 055 6339.

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