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Euro drops as German vote sinks in, gold retreats

Berlin - Politics dominated trading on Monday, with the euro sliding as Germany’s election result foreshadowed potentially complex political-coalition building. European stocks were mixed following declines in Asia, and most government bonds advanced.

The  common currency weakened against almost all its major peers after Chancellor Angela Merkel won Germany’s election with a smaller share of the vote, while the country’s main far-right party, Alternative for Germany, posted a surprisingly strong result. 

The yen pared a drop as Japan’s prime minister unveiled a fresh stimulus package and said he’ll dissolve the lower house of parliament ahead of a general election. Stocks in Europe edged higher helped by the weaker euro, but shares in developing nations headed for a third day retreating.

“The question is obviously now what it means for policy going forward” in Germany, Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank, said on Bloomberg Television in reference to the election.

“Investors are going to be closely following announcements on policy, especially given that fact that the AfD is not just nationalist, but also anti-euro to some extent.”

The process of building a new government could take weeks, so markets may well move on from the result quickly. Trouble continues to foment in the Catalonia region of Spain, while central banks grandees including Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi are among those scheduled to speak this week.

Meanwhile, the New Zealand dollar lost as much as 1.1% amid disappointment the ruling party failed to get a majority in a weekend vote, kicking off what could be weeks of coalition-building talks.

Main market moves

Stocks

The Stoxx Europe 600 Index rose 0.1% as of 11:06 London time, the highest in more than two months. The MSCI All-Country World Index dipped 0.2% to the lowest in more than a week. The UK's FTSE 100 Index fell 0.2%, the largest fall in more than a week.

Germany’s DAX Index climbed 0.1% to the highest in more than 10 weeks. The MSCI Emerging Market Index decreased 0.7% to the lowest in more than two weeks. Futures on the S&P 500 Index fell 0.1%

Currencies

The Bloomberg Dollar Spot Index climbed 0.2% to the highest in three weeks. The euro dipped 0.5% to $1.1888, the weakest in more than a week. The British pound rose 0.1% to $1.3519.

Bonds

The yield on 10-year Treasuries fell one basis point to 2.24%, the lowest in a week. Germany’s 10-year yield declined four basis points to 0.41%. Britain’s 10-year yield fell one basis point to 1.341%, the largest drop in more than two weeks.

Commodities

Gold fell 0.2% to $1,295.40 an ounce. West Texas Intermediate crude declined 0.1% to $50.63 a barrel.

Asia

Japan’s Topix index advanced 0.5% at the close in Tokyo. Australia’s S&P/ASX 200 Index ended virtually unchanged and South Korea’s Kospi index slid 0.4%.

The Hang Seng Index in Hong Kong fell 1.4% with Chinese property developers slumping after several cities on the mainland tightened rules on home sales. The Japanese yen declined 0.1% to 112.06 per dollar.

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