Market Report: Investors Take Election Outcome in Stride

DAX set to gain as investors take election results in stride

The talking point on the stock market today will be the election results in Mecklenburg-Vorpommern and Berlin. Falling oil prices are supporting the DAX, while economic conditions are likely to be the main focus this week.

Broker IG is pricing the benchmark index 0.4 percent higher at 25,418 points ahead of the Xetra trading session open. Last Friday, the DAX closed down 1.6 percent at 25,304 points. On a weekly basis, losses amounted to around one percent. Overall, the index has now posted three weak weeks following its record high of 26,618 points.

After recent losses, the DAX could therefore stabilise, even as political pressure on Chancellor Friedrich Merz increases following another election setback for his party, the CDU. The election outcome remains an important topic after the Christian Democrats were even expelled from a state parliament for the first time, in Mecklenburg-Vorpommern.

Among individual stocks, shares in residential property companies Vonovia and Deutsche Wohnen could also be in focus today. The Left Party won the Berlin election by a wide margin. Housing shortages and excessive rents were a key issue in the Berlin election campaign. The Left Party is calling for the expropriation of large housing companies and also plans to introduce a rent cap for state-owned properties.

Falling oil prices should provide support: on commodity markets, North Sea Brent crude fell 2.1 percent to $101.72 per barrel (159 litres). US oil WTI was trading 2.2 percent weaker at $98.10.

However, signals from the Middle East remain contradictory. Iran signalled over the weekend, according to its top security coordinator, its readiness to end the war with the United States on the basis of the framework agreement concluded in June. At the same time, the military once again issued threats against the US and its allies.

High oil prices can drive inflation. Rising oil prices feed through to many other goods and services via transport and production costs. However, Helaba notes that in such an environment equities offer a certain degree of protection against rising inflation.

Aside from the election results and oil prices, investors will be closely monitoring economic conditions this week. They are asking whether recent hopes for solid economic growth will be confirmed.

Economists, however, see grounds for optimism. The Institut der deutschen Wirtschaft is tripling its growth forecast for this year, with experts now expecting growth of 1.2 percent. The main reason cited is a surprisingly strong first half of the year. Additionally, the debt-financed special fund for infrastructure modernisation is available for the first time for the full year. "In the second half of 2026, momentum will ease again," the economists said.

The IW sees risks to the economy in the wars in Ukraine and the Middle East. Consumers and businesses are feeling the impact of higher energy prices. The IW expects inflation of just over 2.5 percent for this year.