DE30: European equities join global rout

Summary:

• CDU leadership vote will take place on Friday

• DAX (DE30 on xStation5) paints another lower high

• German carmakers announce US expansion plans following meeting at White House

Given steep declines seen yesterday on Wall Street and similar downbeat moods during today’s Asian session it should not come as a surprise that the major stock market indices from the Old Continent opened significantly lower on Wednesday. Almost every European blue chips index saw an over 1% downward price gap with Polish shares underperforming the most. Swiss and British companies are subject to the smallest downward pressure. All 19 sector subindices from the Euro Stoxx 600 index launched today’s trading lower with miners and banks being among the most pressured companies.

DE30 failed to break above the 11650 pts handle producing another lower high as a result. Steep decline seen yesterday suggest that the German benchmark may test the lower limit of the current trading range at 11050 pts in the nearby future. Note that Friday’s CDU leadership ballot may exert some volatility on DE30. Source: xStation5

While investors in Europe are mostly concerned about Brexit vote scheduled for 11 December, it should be noted that one more crucial vote in terms of the European politics will take place earlier. The German Christian Democratic Union members will gather on Friday in Hamburg to elect new party leader. As the current leader, Angela Merkel, already announced that she will not run for re-election uncertainty lingers over who will be de facto leader of the Europe’s biggest economy. One of the favourites is Friedrich Merz, a devoted conservative. However, his possible victory is seen as somewhat dangerous to current CDU’s policy. Bloomberg highlighted that several CDU lawmakers are worried that Merz could challenge Merkel’s migration policy and push CDU back towards more conservative approach. As Merz is viewed as power-thirsty politician there are also concerns that he might attack Merkel for her doings as Chancellor and risk internal war in the Germany’s biggest political party. Another candidate in the ballot is Annegret Kramp-Karrenbauer, Merkel’s loyalist and supporter. Having said that, one can view upcoming elections as vote on whether to continue current policy or shift it towards CDU’s traditional conservative approach.

The final European services PMI reading for November was released. The reading came in at 53.4 pts, a notch higher than median estimate of 53.1 pts. In turn the composite PMI gauge moved to 52.7 pts from 52.4 pts seen in preliminary reading. As it is usually the case with PMI revision no major price movement was spotted on the EUR market.

Major European stock indices after the first hour of trade:

• DAX (DE30): -0.88%

• FTSE 100 (UK100): -1.09%

• CAC40 (FRA40): -0.92%

• IBEX (SPA35): -0.79%

• FTSE MIB (ITA40): -0.47%

German auto industry proves to be somewhat resistant to today's downward pressure. Source: Bloomberg

Company News

Herbert Diess, the CEO of Volkswagen (VOW.DE), hinted on a possible cooperation with one of the major US peers yesterday. Diess said that Volkswagen may need to increase its production capacity in the United States and in that case it is considering using Ford’s (F.US) production plants to manufacture its Volkswagen and Audi cars. However, what one may find interesting is the fact that Volkswagen is not fully utilizing its US production plant at the moment. Having said that, why did Diess pointed at need to increase capacity in the US? The reason is simple - politics. Diess’ remarks were expressed following yesterday’s meeting of the German car makers’ executives at White House and may be viewed as attempt to soften Trump’s administration stance towards European auto industry.

Apart from the Volkswagen’s CEO, the Chief Financial Officer of BMW (BMW.DE), Nicolas Peter, also struck similar tone. Peter reiterated that BMW is mulling opening second production plant in the US that would produce powertrains for its cars. Let us recall that the company plans to open new plant in Mexico by summer 2019.

Bayer (BAYN.DE) and HeidelbergCement (HEI.DE) were subject to some upbeat analyst action recently. The former company was upgrade to “buy” at DZ Bank while the latter was upgraded to “overweight” at JPMorgan. Price targets were set at €81 and €73 respectively. Nevertheless, both companies trade lower today amid severe deterioration of moods.

Volkswagen (VOW.DE) shares were subject to some hectic price moves as of late. The stock’s upside movements seem to be limited by the 200-session moving average that is coinciding with the resistance zone ranging €155-157. Note that the aforementioned moving average managed to halt price moves earlier (orange circles) therefore one cannot rule out another such outcome once the stock manages to push higher. Source: xStation5