German And Dutch Elections, And FOMC, BOE, And BOJ Meetings

The week ahead is one of the most event-packed weeks of the first quarter. There are elections and central bank meetings in addition to a series of high-frequency data that includes the first look at March surveys (Philadelphia Fed and ZEW).

The central bank meetings (FOMC, BOE, and BOJ) will command the most attention, but the elections come first chronologically. Two German states (Rhineland-Palatinate and Baden-Wurttemberg) will be held on March 14. They are important to global investors and businesses because of what they may portend for the national elections in late September. Rhineland-Palatinate is currently a center-left coalition by the Social Democrats, Free Democrats, and Greens. Baden-Wurttemberg is the only state the Greens lead, but they are in a coalition with the Christian Democrats.

Some suggest this "green-black" coalition could be replicated on the federal level. Indeed, as the presence of the Greens hints, they could become Germany's second party in September by overtaking the SPD, which has been cohabiting with the CDU for so long that some think the distinction has blurred.

On PredictIt.Org, the new head of the CDU, Laschet, formerly the head of North Rhine-Westphalia's government, is trailing behind Soder, the head of the CDU's sister party in Bavaria for Chancellor. The CSU has been critical of Merkel from the right, while Laschet represents greater continuity. The Green's Baerbock is slightly ahead of the SPD's Scholz but far behind the CDU/CSU.

The Dutch election will be held on March 17. While the two-party system has its critics, Dutch politics are so fragmented that after the last general election in 2017, it took 225 days to forge a new government. There are nearly 90 registered political parties, and more than a dozen have seats in the lower chamber (House of Representatives).

For international investors and businesses, the election may be a test of the support for the nationalistic anti-immigration, populist message of the People's Party for Freedom, the country's second-largest party.

Even if monetary policy is exhausted, as some claim, next week's central bank meetings are center stage. The FOMC meeting concludes on March 17, followed by the now customary press conference.

It is possible that to distinguish monetary policy proper from the regulatory function, the Fed may choose to address the March 31 expiry of the exemption of Treasury holdings and excess reserves from the calculation of supplementary leverage ratio separately from the meeting. That exemption allows the banks' balance sheets to be around $600 billion larger than otherwise, according to estimates. With record government deficits and large-scale asset purchases ($120 billion a month) by the Federal Reserve, bank capacity is a key part of the plumbing.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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