The German Social Democrats have endorsed the Grand Coalition, ending the period of political uncertainty and paralysis in Germany since the last September’s election. The polls have suggested nearly 60% of the SPD would support joining the government and the actual outcome looks to be closer to 66%.In 2013, when the SPD had a similar vote, three-quarters favored a Grand Coalition. Among the differences is that the SPD public support has waned, and now, according to some polls, is at risk of slipping into third place behind the AfD.

Another difference is that the CDU is more desperate as well. Merkel’s first choice was a coalition with the FDP and the Greens, but negotiations failed.The SPD has secured two key portfolios: the foreign and finance ministries. Previously, there was some thinking that responsibility for Europe could shift from the finance ministry to the economics ministry, and it is something investors will want to monitor for insight into Germany’s European policy. At the same time, it appears that that differences between the two major parties are not as great as the rhetoric sometimes suggests.

Italy holds the only G7 national election this year. The first exit polls will be available around 5:00 EST/22:00 GMT. In 2013, these exit polls were not very helpful. The first hard numbers are likel two-three hours later. If the election is as close as the polls before the blackout suggested, it may take longer to get decisive results. Suffice it to say that although there is keen interest, the uncertainty did not weigh on the euro, which finished at near the week’s highs and Italian assets have more than held their own in the run-up to the elections.  

After a couple of weeks’ recovery from the swoon into the middle of February, equities moved lower last week. Although the US tariffs and threat of a trade war riled investors, the equities were already falling, and the US stocks staged a late rally before the weekend. The S&P 500 and Nasdaq closed higher after recording new lows for the week. The Dow Industrials failed to do so and will start the new week carrying a four-day losing streak in tow. 

Conventional wisdom holds that protectionism is not good for the dollar or the stock market, but most of the evidence seems to be selectively picked. For example, the great free-trade president Reagan used “voluntary export restrictions” and “orderly market agreements” to limit import penetration, and the dollar rallied until 1985 when the G7 coordinated intervention to knock it down.  

Also, much of the work coming from Wall Street and the financial press offer narrow and subjective definitions of protectionism and only find a few examples. A more robust approach could look at the cases brought against the US to the WTO which the US lost. In addition, in the accounts, little attention is paid to the direction of stocks and the dollar before the protectionist measures were implemented. For example, US stocks and the dollar were falling before Bush’s steel tariffs in 2002 and fell after they were lifted in 2003. To attribute causation or even correlation would seem to require more work.