Deutschland Unter Allem
The AfD victory wrecks Germany’s prospects of economic reforms and should destroy any vestiges of financial market optimism. That is a serious dough-nut hole in the core of Europe’s economic and political aspirations. And it calls into question the defence of Ukraine and the internationalisation of the EuroEuropean assets will suffer from this.
The EU is a jelly fish which, when kicked, wobbles and habitually stays much the same. This is only partly true of the AfD victory. It creates a triple model for European right-wing populists: Italian, French and German. The AfD model is not exportable and does not create a unified populist approach that would call into question the European Union. But there are risks from other forms of populism - such as Le Pen and the RN, which are not as vitriolically opposed to the EU as the AfD, but are, like the AfD, pro Moscow and opposed to defending Ukraine.
We have sold out long 2 yr Bund position and put the proceeds in Switzerland and Singapore. We are short French (OATS) 10 yrs sovereign bonds. QS remains short European equities. We are neutral the Euro and would be short were it not for a worse outlook for the US$. Our long currency positions are SGD, RMB and AUD to which long CHF is being added.