Markets extend gains after German elections, ahead of US data, Fed speeches

The market mood remains upbeat after the SPD came on top in Germany’s elections, as expected and as the Evergrande crisis is moving out of sight. Several Fed members will speak after last week’s explicit taper signal and Durable Goods Orders are of interest.

Germany: Finance minister Olaf Scholz is on course to lead Europe’s largest economy. after his center-left SPD came on top in Germany’s federal elections. He will have to collaborate with kingmakers FDP and the Greens, which differ on several critical issues.

Outgoing Chancellor Angela Merkel’s CDU party may still lead to remain in power but would also need to collaborate with the kingmarkers. Talks to form a new government are set to last for long months. The probable participation of the business-friendly FDP soothes markets fearing substantial regulation. Moreover, the ex-communist Die Linke party has barely entered parliament and a strictly left-leaning coalition is not feasible.

EUR/USD is rising above 1.17. Apart from reactions to the German elections, European Central Bank President Christine Lagarde is set to speak. The ECB is set to phase out one bond-buying scheme, the PEPP, but ramp up another, the APP.

Evergrande: China’s highly indebted property developer continues struggling to pay its dues but the company’s efforts and Beijing’s massive liquidity injections seem to have convinced investors that the crisis will remain local rather than systemic. Last week’s recovery in global stocks was substantially tied to calm on that front. S&P 500 futures are up.

Fed speeches: John Williams, Lael Brainard, and Charles Evans of the Federal Reserve are slated to speak on Monday, several days after the bank’s taper announcement. Fed Chair Powell indicated a reduction in bond-buying is coming in November and would end by mid-2022.He will testify on Tuesday.

The move was well-received by markets and supported the dollar. Gold is recovering, changing hands above $1,750.

Debt ceiling: American lawmakers have yet to make progress on raising the preventing default by raising the debt ceiling. A showdown is due in Congress on this sensitive issue which markets are currently dismissing. The fate of the $3.5 trillion infrastructure bill is also set to be sealed, potentially on Thursday.

GBP/USD is trading closer to 1.37 after the Bank of England hinted it could raise rates in response to rising inflation – and could do that before concluding its bond-buying scheme. Two members voted for an early end to debt purchases. BPE Governor Andrew Bailey speaks late in the day.

Britain is facing a potential drying-up of fuel at gas stations due to a Brexit-related shortage of truck drivers.

US Durable Goods Orders figures for August stand out on the economic calendar. An increase in both headline and core figures is on the cards.

Cryptocurrencies have been rising, with Bitcoin trading around $44,000, Ethereum above $3,100 and ADA at around $2.25. Enthusiasts are dismissing China’s announcement that all digital assets would be considered illicit financial activity.

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