German shares dip after far-right victory in local election

By Jamie Chisholm

Frankfurt stocks led European bourses lower early on Monday after a surge in support for a far-right party in Germany's local elections and weak economic data from China damped investor sentiment.

Despite inheriting Friday's strong close from Wall Street, the DAX index initially fell 0.5% as investors started the week with news that the AfD won Sunday's election in the eastern state of Thuringia with 32.8 per cent - the first time a far-right party had won a state poll in Germany since the Second World War.

There was also an increase in voting for the far-left BSW, raising fears among investors that populist agendas considered damaging to the economy and corporations may have to be co-opted by the traditionally more mainstream parties.

One area that the AfD and BSW agree on is that Germany should not support Ukraine by supplying arms, and so shares in arms manufacturers such as Rheinmetall (XE:RHM) were under pressure.

However, the DAX pared some of its losses as the session progressed as analysts argued the local elections were unlikely to affect national policies as much as feared.

"Weak election results are likely to accelerate the switch into campaign mode for next year's federal election, reducing the scope for meaningful reforms until then," said Marion Muehlberger, senior economist at Deutsche Bank.

"Sunday's regional election results are not a preview of the next federal election," she added.

Still, sovereign bond markets continued to display concern, with the 10-year German Bund yield BX:TMBMKDE-10Y rising 3.6 basis points to 2.338%, the highest in a month.

Meanwhile, shares of German vehicle manufactures, such Mercedes-Benz (XE:MBG), were lower as traders showed concern about the health of the Chinese economy after a survey over the weekend showed manufacturing activity sank to a six-month low in August.

The sour tone was spread across the continent, with the CAC 40 FR:PX1 in Paris down 0.4% and London's FTSE 100 UK:UKX down 0.2%.

-Jamie Chisholm

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-02-24 0714ET

Copyright (c) 2024 Dow Jones & Company, Inc.