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Markets Ill At Ease In New Week As Coronavirus, Kramp-Karrenbauer Downfall Weigh

Testing investors' deeply-ingrained Pavlovian dip-buying instincts...

Leftover unease from Friday lingered in the new week as markets warily eyed the latest developments in the coronavirus, which has now killed 910, more than SARS.

Across the world, some 40,600 people have been infected. Xi made a public appearance on Monday in the Chaoyang district in Beijing. He wore a mask, “investigated” some facilities, and had his temperature taken. (Don’t worry, he’s fine.)

“On the afternoon of the 10th, Xi Jinping investigated and guided the prevention and control of the new pneumonia epidemic in Beijing”, Xinhua wrote, in a propaganda piece.

Taiwan banned entry for Hong Kong and Macau residents, and Carrie Lam’s government lost track of two people who were quarantined. Shenzhen denied a Foxconn request to restart production.

The number of confirmed cases on the ill-fated Diamond Princess cruise ship docked at the port of Yokohama in Japan nearly doubled to 136. The UK confirmed four additional cases and dubbed the virus a “serious and imminent threat to public health”.


Meanwhile, news that Angela Merkel’s protege Annegret Kramp-Karrenbauer will step down as CDU leader and won’t run for chancellor probably isn’t doing risk assets any favors either.

Although AKK has struggled to fill her legendary mentor’s shoes, her inability to prevent a regional CDU chapter in Thuringia from supporting a local leader who was helped into office by the far-right AfD was a humiliating, bitter blow. For obvious reasons, postwar German politics has sought to ostracize the far-right.

As Reuters notes, “the scandal has been particularly damaging for the CDU because the AfD branch in Thuringia is headed by Bjoern Hoecke, a militantly anti-immigrant figure who leads a radical wing within his party that is monitored by the domestic intelligence agency for possible unconstitutional activities”.

This isn’t wholly surprising. If you’ve followed AKK’s trajectory since winning the CDU leadership more than a year ago, it’s been clear for quite some time that her ascendancy to the chancellorship was anything but a foregone conclusion. Merkel was said to voice doubts last spring about whether her chosen successor was up to the job.

“Regardless of personal sympathy, one has to see that the base had growing doubts about AKK’s capabilities for the chancellorship”, lawmaker Olav Gutting told Bloomberg.

There are now (at least) four people vying for the CDU leadership.”‘Kramp-Karrenbauer’s erstwhile rivals for the party leadership – Friedrich Merz and Jens Spahn – have been circling with intent”, Reuters writes.

AKK will remain defense minister.

Senior SPD member Michael Roth tweeted this: “After the announced withdrawal of @akk, it is even more uncertain whether decent democrats will stand together across party lines in the fight for democracy & against nationalism. Disturbing.”


All of this is contributing to a kind of ill-at-ease feeling on Monday across markets, although as we saw last week, the virus scare isn’t sufficient to override investors’ deeply-ingrained Pavlovian dip-buying instincts when central banks are keeping the liquidity spigots open.

As far as geopolitical headwinds go, that’s nothing new. A defining feature or markets over the past several years has been the remarkable somnolence of market-based measures of volatility during periods of acute political turmoil.


 

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