We've got another big political weekend ahead with elections in both Germany and New Zealand. Paul Krishnamurty updates the market trends and explains some key dynamics...
"The two candidates for New Zealand PM are the incumbent Bill English and Labour's Jacinda Ardern. Both the party alignment and issues are similar to the divide in the UK, and Ardern has been widely likened to Jeremy Corbyn. She has been leader for less than two months, since when Labour's poll ratings have surged dramatically."
Fourth term looks secure for Angela Merkel
Three days out from the German Federal Election, Betfair markets could barely be offering a clearer signal towards the result. Despite short-odds punters getting burnt in a series of big polls around the globe recently, they are queueing up to back Angela Merkel's CDU/CSU party at the minimum odds of [1.01] - equivalent to 99% chance - to win the Most Seats. Meanwhile Merkel is rated 98% likely to win a fourth term as Chancellor at odds of [1.02].
While those recent upsets should guard against complacency, there is literally no polling evidence to suggest one. The key difference with for example, the US and UK elections, is a proportional voting system that ensures smaller parties hold their own. As explained earlier this week, the big questions concern the nature of the Next Government.
Currently Germany has a 'grand coalition' between the two mainstream left and right parties and that remains the favourite, trading around [1.8] (56%). Were the centre-left to underperform, however, Merkel may look to her party's historic partner the FDP and/or the Greens. A three-way 'Jamaica' coalition - named so after the party colours - is rated second likeliest, and was matched earlier today at [2.52] (40%).
However, the big international news story concerns a party that will not enter government, because the others refuse to deal with it. The far-Right AfD had slipped back from earlier peaks, in the wake of Merkel's decision to invite nearly 1M refugees to stay, but current polls have them on course for a clear third place and significant representation in parliament.
Indeed, the latest Yougov model predicts they will win 85 of the 686 seats. If their projection is correct, German politics will be rocked to the core. Even this late in the campaign, their extremism is unapologetic, with co-founder Alexander Gauland telling supporters they should be proud of German soldiers during the second World War.
In fact it is quite plausible that the AfD could significantly overperform these polls, because their voters are less willing to admit their preference. In the country where the shame of Nazism and WW2 remains more prelevant than anywhere in Europe, this would be no surprise. In our market regarding their vote share, AfD are trading around [2.34] to earn between 12.0 and 14.99% and roughly the same for the band below that. If you buy into the 'Shy Nazi' theory, then [6.4] about them getting 15% or more might be of interest.
If those seat total projections are correct, it would probably ensure a continuation of the CDU/CSU + SPD arrangement, because that 'Jamaica' coalition would only just win enough seats and be seen to have underperformed. It must be said, though, that the Yougov projection for the SPD is higher than their general polling and contradicts the negativity amongst the German centre-left right now. Lest we forget though, Yougov were mocked when departing from the consensus before the UK election, yet proved to be spot-on.
With that in mind - this new modelling approach seems like an impressive alternative to conventional polling - I've taken a very small profit out of the lay position at [1.6] advised in my earlier piece.
Could the Kiwi Corbyn pull off an historic upset?
Also this weekend, there is a much tighter election taking place in New Zealand, and this one appears to be much less predictable. Betfair markets and polls have swung back and forth, with both the National (Conservatives) and Labour assuming the lead and favouritism at different stages.
Currently the incumbent National Party have re-assumed strong favouritism at [1.32] to win Most Seats but are slightly bigger at [1.5] to provide the Prime Minister. It seems likely that either party would need to form a coalition - the two minor parties in contention for role of minor partner are the Greens and nationalist New Zealand First.
The two candidates for New Zealand Prime Minister are the incumbent Bill English and Labour's Jacinda Ardern. Both the party alignment and issues are similar to the divide in the UK, and Ardern has been widely likened to Jeremy Corbyn. She has been leader for less than two months, since when Labour's poll ratings have surged dramatically. 'Jacindamania' is particularly strong among similar voter groups to Corbyn - women and milliennials.
Labour were favourites just a few days ago but the latest polls showed National retaking the advantage. There is a perception that Ardern is untested and financial markets have been nervy. That might explain the latest poll shift towards National.
However, while late swings to the status quo used to be a common indicator in elections, this much vaunted theory has taken a big hit in recent times. If Ardern is indeed Corbynesque, Labour will overperform their poll ratings when it matters. This certainly doesn't look like the sort of election to be steaming into the short-odds favourite.