Source: Sharecast
The result shocked markets across Europe, as Merz had been widely expected to win the vote and succeed Olaf Sholz six months to the day his government collapsed.
The pan-regional Stoxx 600 index was down 0.6% at 534 points, with Germany’s DAX down 0.85% having slumped 2% on the news.
Merz's CDU/CSU/SPD coalition has a nominal 328 votes in the Bundestag – but he received only 310 and fell six short of the majority required to confirm him as the leader of Europe's biggest economy.
It is the first time in Germany’s post-war history that a candidate has lost the first round of voting. Merz, 69, leads the centre-right CDU/CSU bloc which won February’s snap election with 28.6% of the vote, forcing him to agree a coalition with the socialist party.
In economic news, eurozone business activity slowed last month, with a stuttering services sector offsetting a surprise jump in manufacturing, according to a survey published on Tuesday.
The HCOB eurozone composite PMI output index fell to 50.4 for April, down from 50.9 in March as new orders fell on the back of weak demand.
In services sector, the services PMI hit 50.1 a five month low and down from March’s 51.0. Any reading over 50 indicates expansion.
Investors also eyed the latest round of US President Donald Trump’s erratic tariff policy and the start to the Federal Reserve’s two-day policy meeting.
Wall Street closed lower on Monday as potential trade talks were firmly in focus throughout the session on reports that the White House was nearing a deal with India after the South Asian nation proposed zero tariffs on steel, auto components and pharmaceuticals on a reciprocal basis, up to a certain amount of imports.
Trump also authorised government agencies to slap a 100% tariff on films produced abroad, stating that efforts from other nations to attract US film productions was a "national security threat".
“After a nine-day winning streak US equities finally fell under the pressure of fresh uncertainty. Safer assets were back on the menu, with gold prices climbing to a one-week high as investors rushed to safer ground after President Trump threatened fresh tariffs,” said Hargreaves Lansdown analyst Matt Britzman.
“His latest targets include foreign-made movies and pharmaceuticals, adding to the uncertainty around global trade. All eyes are now on the Fed, with markets watching closely to see if it holds firm on rates despite pressure from the White House.”
In equity news, Associated British Foods on Tuesday confirmed it was in talks on a potential sale of its Allied Bakeries unit with Hovis bread owner Endless.
Deliveroo has agreed terms for a £2.9bn takeover by US-based delivery platform DoorDash.
Vestas rose after the wind turbine maker reported an unexpected first-quarter operating profit.
Redcare Pharmacy slumped on renewed tariff threats.
Reporting by Frank Prenesti for Sharecast.com