NZD expected to rise modestly on market-open; Peters to create uncertainty; Angela Merkel to stay but support for anti-immigration party surges; Moody's downgrades UK credit rating; UST 10yr yield at 2.25%; oil, gold stable; NZ$1 = 73.3 US¢, TWI-5 = 75.5

Here’s my summary of how the world’s looking after a big weekend of politics.

National’s strong result in Saturday’s election is expected to see the New Zealand dollar rise when markets open this morning. However those gains are set to be dented by the fact Winston Peters is back on his kingmaker’s throne.

In the lead up to the election, markets have responded more favourably to the prospect of a National-led government, versus a Labour-led one. And Westpac economists note the average response by the NZD over the past 10 elections has been a modest rise on the Monday after, followed by a two-week period of sideways movements, and then a larger rise.

While we can’t be certain this is how things will pan out this time around, it’s a good indicator.

ANZ economists note that while the last thing the NZ economy needs is a drawn-out process to form a coalition, the ability of an economy to navigate uncertainty shouldn’t be underestimated. Just look at the resilience of the US and UK economies.

As for what having Peters in government may do, Westpac economists say his policies are likely to have a neutral to negative effect on the Official Cash Rate (OCR) in the short run. However they’re reluctant to make any set calls on this, noting the fact we don’t know what either National or Labour will give Peters, and whether this would see them run a more stimulatory fiscal policy than would otherwise be the case.

Either way, ANZ economists believe we can expect the next government to spend more in 2018/19. They say this may be required to offset key growth drivers, such as housing, net migration and tourism, which all look to be starting to run out of steam.

Coming back to the NZD, the German election is likely to have a bigger impact on this than our election. Chancellor Angela Merkel appears to have won a fourth term in office, but support for her conservative bloc has slumped to its lowest point since 1949.

The anti-immigration Alternative for Germany party has stunned the establishment by winning 13% of the vote, according to projected results, which will put a far-right party into parliament for the first time in more than half a century. The Social Democrats received their worst result since the 1940s, at 21%.

Finally, Moody’s has downgraded the UK’s credit rating, citing concerns about public finances and the effect of Brexit. Moody’s was the first major credit ratings agency to strip the UK of its AAA rating in 2013 and it has now cut the rating from Aa1 to Aa2. The credit ratings agency says the outlook for public finances has “weakened significantly” since it last changed the country’s rating.

In New York, the UST 10yr yield has dropped since this time on Friday to 2.25%.

The crude oil price is stable at just under US$51 a barrel, while the Brent benchmark is just under US$57.

The gold price remains at US$1,293/oz.

The New Zealand dollar is up since this time on Friday at 73.3 US cents, 92.2 AU¢, and 61.5 euro cents. The TWI-5 index is at 75.5.

If you’d like to catch up with all the changes from Friday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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