Stocks fall in response to German election, slow manufacturing growth

Twin bits of negative news in the past week have caused stocks across the eurozone to fall, but the decrease should not be considered a permanent or large drop, according to NordFX Company.

U.K. stocks, for instance, fell for the first time in a month as euro area manufacturing industries were reported to have grown slower than expected in September. The stock losses were not dramatic, but they were noticeable because they contrasted to previous weeks’ gains.

The small drop on the FTSE 100 Index (UKX) amounted to 0.6%, but still left the equity benchmark up 2.3% as China’s economic reports were better than expected and the U.S. Federal Reserve did not reduce its monthly asset purchases, as had been expected.

The eurozone manufacturing report was not gloomy, but not encouraging either. It fell less than 1% in August, so perhaps it was the German political news that most dismayed investors, NordFX Company noted. China’s manufacturing, by contrast, rose to a six-month high in September, cheering many traders.

Regarding the German political scene, Angela Merkel’s Christian Democratic (CD) union failed to win a majority in parliament, a surprise to some analysts. The CD union came up just five seats short, so Merkel and her associates will need to find a new partner to form a coalition after the Free Democrats won just 4.8% of the vote, just below the 5% needed to win seats in the lower house of parliament.

Speculation about the coming coalition with a new partner has been vigorous, with the uncertainty dismaying many brokers, who have cheered Merkel and her party’s handling of the German economy. As Europe’s largest economy, Germany always has an outsized impact on the rest of the euro zone, thus its political outcome has been watched with great interest. Germans did not share investors’ enthusiasm for the Christian Democrats, so the party will be forced to go to plan B.

Brokers are also keeping an eye on the price of gold, noting its drop of 3% on Sept. 20 as it continues to decline more than desired.