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Germany, Politics:
Hesse state elections convey strong endorsement of pro-market politics
The big surprise in the Hesse state elections on 18 Jan was the strong showing of the pro-market Free Democratic Party (FDP), which will allow the formation of a right of centre state government.
Voter support for the Social Democrats (SPD) slumped and support for the Christian Democrats (CDU) already at a low, was stagnant.
With federal elections looming in September, the SPD and the CDU are likely to trumpet their economic credibility to woo middle ground voters with more business friendly rhetoric.
The Hesse result increases the chances of a CDU/CSU-FDP coalition post election and bodes well for market-oriented policy. An SPD comeback cannot be ruled out, but looks less likely than in 2005.
Any pro-business policy shift is likely to happen gradually.
Asset conclusions: stronger impact of pro-market FDP in the upper house and increased chances of a pro-market national government in the future support German stocks.