DE30: Stocks decline on rising recession fears

08:06 4 June 2019

Summary:

  • Equity markets in Europe begin with declines after falls in Asia and on tech stocks in the US
  • A short-lived bounce in the DE30 looks likely
  • VW sticks to its plan to list a heavy-truck division Tration this year

Over the course of the recent weeks some central banks have taken steps toward monetary policy easing either by straightforward rate cuts - RBA and RBNZ - or by suggesting such a possibility if needed. This has been a response to growing recession fears that seem to have entrenched yet more of late. As a result, equity markets have retreated, bonds have surged while the US dollar has kept its strength being treated like a safe haven asset. Yesterday, we got some comments from Fed’s James Bullard who indicated that a rate cut might be warranted soon given rising trade tensions. This kind of wording sets expectations ahead of the Federal Reserve meeting in two weeks when the US central bank may slash its economic projections and communicate that it stands ready to act if needed. What could it mean for the US economy and markets as well? If the Fed says that the US economy may soon need some monetary policy easing, it could be taken by market participants as a bellwether of an oncoming recession. If so, it may push stocks’ valuation to lower levels globally and bonds could see the similar move too. As far as the FX market is concerned, rising fears of an oncoming recession does not seem to be unequivocal. On the one hand, the US dollar tends to appreciate in turbulent times, on the other one its valuation seems to be already stretched, hence market participants may look for some alternatives like gold and other precious metals or safe haven currencies like JPY and CHF (moreover, the NOK could also prove to be a beneficiary once the Norges Bank keeps rising rates).

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Although the start to Tuesday's trading has not been successful, bulls appear to be taking control on the market. The price has managed to stay within the downward channel at around 11720 points, hence from this point of view one may expect a continued bounce at least toward 11920 points where the more notable resistance could be found. Source: xStation5

Looking into the DE30 one may notice that VW shares are among the top performers in early trading. This could be tied to a report released by the company yesterday evening. The firm confirmed that it would still plan to list its heavy-truck division Tration in Frankfurt and Stockholm later this year despite the latest jitters seen in the markets. It is to be one of the largest IPOs in Europe this year and is expected to be completed before the summer break in August, VW truck chief Andreas Renschler said. The VW’s plan could be a bit surprising to some market observers taking into account the latest downturn in the automobile industry in the western Europe related in part to more restrictive carbon emission regulations.

VW is among the top performing stocks in the DE30 this morning after the company said it would stick to its IPO plan. Source: Bloomberg

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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