Germany's far-right AfD won around 44% of the vote in Saxony-Anhalt, its strongest result ever, and the DAX 40 edged lower as investors weighed the political risk premium. The market reaction stayed contained, with oil-driven inflation worries doing more to move German stocks than the election itself.
AfD scores a historic win in Saxony-Anhalt
The Alternative for Germany won around 44% of the vote in Sunday's Saxony-Anhalt election, becoming the largest political force in the eastern German state. The result marks the party's strongest performance in its history and adds pressure on Chancellor Friedrich Merz and his governing coalition.
Turnout surged from 60.3% at the previous election to around 76.5%, and much of that extra participation benefited the AfD. Rather than previously disengaged voters strengthening the political centre, many appear to have turned out to punish the mainstream parties.
The AfD secured 39 of the 83 seats in the state parliament, three short of an outright majority. The CDU, meanwhile, took 17.2% of the vote, down from 37.1% at the previous election. However, forming a government remains uncertain because Germany's mainstream parties maintain a political firewall against working with the AfD.
DAX edges lower as political risk premium builds
The DAX 40 was trading around 0.25% lower on Monday, a session in which US markets were shut for Labor Day, with the AfD result cited as one factor behind the weakness. Yet the reaction has stayed relatively contained, suggesting investors are not yet treating the election as a major threat to Germany's economic or corporate outlook.
Other forces are exerting greater influence on European equities right now. Rising oil prices following renewed US-Iran attacks are adding to inflation concerns and reinforcing expectations that the European Central Bank could raise interest rates on Thursday. The broader STOXX 600 was also slightly lower, while energy stocks benefited from the jump in crude prices.
What comes next for German equities
For the DAX, the key question is whether the AfD's success stays a political story or starts to weigh on confidence in Germany's ability to implement economic reforms. A more fragmented political landscape could make it harder for Merz's government to push through measures aimed at reviving Europe's largest economy, particularly if the AfD keeps gaining support in upcoming regional elections.
Right now, the market response looks more like a political risk warning than a broader risk-off move. The bigger test will come if the result strengthens the AfD nationally and starts to undermine confidence in Merz's ability to govern.
Source: IG – News and trade ideas
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