AfD win, ECB hike and US CPI to steer DAX this week

Alternative for Germany (AfD) won the state election in Saxony‑Anhalt over the weekend, taking 44.5% of the vote and 39 of 83 seats. The result leaves the party three seats short of an absolute majority and requires coalition negotiations. The Christian Democratic Union fell to 18.5% from 37.1% in 2021. Some analysts point to the Sahra Wagenknecht Alliance Party as a possible partner to reach the 42-seat threshold.

Investors are assessing how a stronger AfD presence in a regional parliament could affect economic and regulatory policy. Voters cited rising immigration and slower economic growth as concerns. Corporate developments have drawn attention, including Volkswagen’s plan to cut about 50,000 jobs amid rising competition from Chinese automakers.

Equity markets have traded in a narrow range. The DAX closed last week at 26,046 points, near the week’s low of 25,720. Market participants are focused on three near-term events: the regional coalition talks, the European Central Bank decision on Thursday and the US consumer inflation report.

Markets expect the ECB to raise its deposit rate by 25 basis points to 2.65% on Thursday, with traders pricing a high probability of a 25bp increase. The ten‑year German government bond yield jumped to about 3.40% last week before easing to roughly 3.33%, pushing borrowing costs higher for banks and affecting discount rates used to value equities.

US consumer inflation data for August is due this week. Economists polled expect inflation to remain above the Federal Reserve’s 2% target. The US added more than 162,000 jobs in the latest nonfarm payrolls report. A hotter‑than‑expected inflation print would increase the probability of near‑term Fed tightening and could lift global interest rates.

Trade tensions add another risk for German exporters. Former US president Donald Trump has warned of actions against countries with large trade surpluses with the United States. Germany ran a surplus of about $72 billion with the US last year. Any US measures targeting trade partners would affect Germany’s automotive sector, which faces margin pressure.

Investors will monitor the Saxony‑Anhalt coalition talks, ECB communications on Thursday and the US CPI print for signals on policy and market momentum this week.