European markets drift lower

Germany's election results have dominated this morning's market headlines.

Angela Merkel appears to have secured the most impressive German election results since 1990, ensuring that her party will form the basis of the next coalition government. Ms Merkel’s Christian Democratic Union is likely to form this coalition with the Social Democratic Party, but confirmation could take anything from four to six weeks.

There is a fear that now the German elections are over, a number of other EU-related issues will be back at the forefront of discussions. Greece is once again nearing a time when it will need a further injection of cash from the eurozone's bailout fund, and the country has so far failed to successfully tackle the issue of reducing debt and increasing GDP.

Last week’s decision by the US Federal Reserve to hold its current quantitative easing structure took markets by surprise, and comments since have called for better economic data before tapering can begin. With that in mind, the markets’ enthusiasm following German election results has been tempered by anticipation of this afternoon’s US manufacturing PMI, as well as a speech from voting Federal Open Market Committee member William Dudley. Both of these could give a clearer indication of the tapering timeline the Fed might use. At any rate, caution looks to have been the dominant thought in most people’s minds.

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