DE30: Quiet trading in Europe amid US holiday

Summary:

• Major indices open slightly higher today following the new highs on Wall Street
• DAX (DE30) appears to be en route to the highs localized above 13k points
• Commerzbank (CBK.DE) downgraded by JPMorgan, German banks’ employee to have a wage increase

Over the course of recent weeks the global real economy and the global equity markets have been moving in an opposite direction - the former has kept deteriorating (some central banks have already cut rates while others have set the stage for a change in monetary policy) whereas the latter has continued climbing being additionally fuelled by a trade truce reached by the US and China during the past G20 summit in Osaka, Japan. On the wave of such excellent moods across the globe Wall Street struck the new highs on Wednesday just before today’s holiday (the Independence Day). Moreover, during Asian trading hours we got some upbeat revelations suggesting that leaders from the US and China will have a phone call as soon as the next week. Moreover, China has reportedly begun considering increased purchases of some agricultural goods from the US, including corn, soybeans or pork. Such reports act toward maintaining upbeat sentiment in the markets, however, one needs to be aware that a reality check could come in before long once investors realize that more expansionary policy of major central banks (on the face of it positive for equities) is a response to the incoming economic downturn. Thus, we think the net effect for stocks might be negative despite a “so far, so good” approach shared among investors.

The DE30 keeps rising following decent gains seen on Wall Street. From a technical viewpoint buyers might hope the price could be heading toward the resistance at 13 130 points over the coming days. Bear in mind that the German stock market has lagged behind Wall Street recently, hence the US stock market has already made the new all-time highs while the DE30 remains still roughly 8% below the record high from January 2018. Source: xStation5

After the first hour of trading in Europe we may notice that the Italian FTSE MIB (ITA40) is by far the best performing index being up 0.5% (this is a result of the news we got yesterday that the European Commission will not propose to open an excessive debt procedure against Italy). In turn, the DE30 is trading 0.1% higher while other indices are hovering subtly below their closing levels. Thus, one may say that investors remain undecided and this notion is also seen in the German bond market with the 10Y bond yield being actually flat. Keep in mind that a holiday in the United States might limit volatility during the day.

A majority of stocks listed in the DE30 are on the rise in early trading on Thursday. Source: Bloomberg

In terms of news from companies it is worth noting that employees of German public and private banks, roughly 190k, will get a 4% pay increase in two steps - the first one in September and the second one in November next year, according to the Association of Employers in Private Banking. Meanwhile, Commerzbank was downgraded to neutral from overweight by JPMorgan with the new price target at 7.5 EUR, down from 8.75 EUR. This implies a 17% price increase from the last close.