There was an election in Germany. I will not go into the results at all. Let me explain my thoughts on the market side a little more; as expected, there will be a coalition government and the far-right wing will not be in this government. Therefore, the attitude to be taken against the peer bullying of the USA will be relatively more moderate. This will prevent a negative impact on financial assets. We have already seen the first signal of this in the euro/dollar price. Similarly, European stock indices and the Dax index opened the week with the party of liberation from election stress.

I think an important point of the German elections actually touches on the debt ceiling. I do not know how the new government will approach this issue, but it will have serious consequences for the markets. If it chooses to increase the bond supply and create money for the treasury in order to fix the deteriorating economy, the effect on bonds should be to increase interest rates. If you remember, this was exactly what happened in the USA in 2023. After all, there is a whale selling in the market, and when the price of bonds falls, interest rates increase. In this scenario, the stock indexes will probably continue to rise because they will have found extra fuel due to the increase in money despite the increase in interest rates. The parity will probably react upwards, after all, there is an expectation that interest rates will increase. Of course, all this is assuming that other factors remain the same... However, there are many other issues such as customs tariffs and the US defense spending condition.

If this scenario does not happen and the new government does not increase borrowing, this time they will face the risk of an increase in the economic slowdown and the interest rate cuts of the European Central Bank will start to be priced again. In this case, while there will be buying in European bonds, there should be selling in the parity. The stock market in Europe will take shape according to the expectation of how strong the economic slowdown will be.

However, as far as I can see for now, there is a very serious buying wave in defense industry stocks such as Bae Systems, Rheinmetal, Chemring Group, Qinetiq, Thales, Leonardo in Europe. According to a study by Bloomberg Economics, in response to the defense industry, which has not received investment for years, governments in Europe will now invest approximately $3.1 trillion in this sector in the next 10 years due to pressure from the US. Of course, if they can find where to find the money for this investment. But it seems that at least in the beginning, a lot of money will flow into these stocks under names such as state support. Therefore, defense industry stocks in Europe may be the winners of the year. Investment opportunities really do not end while President Trump is around.

The WTI oil price slightly fell below $70 and found support. However, there is still a risk of pricing excess supply in the oil market. If non-OPEC countries in particular continue to extract oil at this pace, it suggests that oil may fall to levels of $50 in the future. In fact, foreign hedge funds have reduced their net long positions in WTI oil by 57% in the last 4 weeks. This means that the big players in the market think that oil will not go up. It seems that they have just started to close their longs in Brent.

One of the reasons is that oil stocks in the US have started to increase again after bottoming out in November 2024. Of course, the Trump factor should be added to this. I argue that Trump’s policies will not be as inflationary as the market expects. In fact, tariffs will undoubtedly affect prices upwards, but when you look at the basket, I expect it to keep the inflation basket balanced by suppressing oil and fuel prices. My belief in this idea is increasing day by day. In this case, it would be too naive to think that oil prices will work upwards. There may be upward attempts with the flow of news, this is already a situation that is in the nature of the market. But most likely the market will use this as an opportunity to sell again. Therefore, it would be risky to carry oil products in the portfolio in case a crisis occurs and oil skyrockets.

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