DE30: UK equities underperform following May’s defeat

Summary:

• Mario Draghi stays optimistic on European economy but warns that current slowdown may be a long one

• DAX (DE30 on xStation5) fails to break above and pulls back away from the 11000 pts mark

• Volkswagen (VOW.DE) and Ford Motor (F.US) start cooperating on vans and pickup trucks

Following a mixed session in Asian stock in Europe opened broadly higher. Swedish and Polish equities gained the most in the first minutes of Wednesday’s trading while, unsurprisingly, shares in the United Kingdom underperformed. Miners and banks led gains while utilities were the only sector group to trade lower at the beginning of today’s session.

DE30 once again failed to break above the resistance zone ranging 10980-11050 pts. However, the more bulls pressure sellers lingering around the 11000 pts mark, the bigger the chance that they will surrender. The 50-session moving average (green line) coincides with the upper limit of the aforementioned zone therefore it can be viewed as the major hurdle for buyers in case they manage to push price significantly higher. Source: xStation5

The German GDP reading was released yesterday and it does not paint a bright picture for the whole continent. According to the data published by the German Federal Statistical Office, the Europe’s biggest economy expanded at the pace of 1.5% YoY in 2018. This is the weakest German GDP reading since at least five years. Nevertheless, the ECB President Mario Draghi remains quite optimistic about the condition of the European economy. During his speech in the European Parliament yesterday Draghi said that ECB’s stimulus helps boost investment, consumption is expanding and the labour market remains tight. However, he also said that the euro area indeed experiences a slowdown but denied that it is heading into a recession. Still, Draghi warned that the slowdown may be longer than expected. Another thing of concern is how the European economy will respond to hurdles arising from Brexit. So far the odds suggest that the UK may crash out of the EU without a deal. While this is certainly the biggest risk for the UK economy, the European one is likely to be hit as well due to trade ties between the two.

Major European stock market indices after the first hour of trade:

• DAX (DE30): -0.06%

• FTSE 100 (UK100): -0.11%

• CAC40 (FRA40): +0.34%

• IBEX (SPA35): +0.24%

• FTSE MIB (ITA40): +0.65%

Deutsche Bank surges after launching internal probe into money-laundering involvement. Source: Bloomberg

Company News

As it was expected Volkswagen (VOW.DE) and Ford Motor (F.US) announced an alliance yesterday. The two companies will start cooperating on vans and pickup trucks in the first place. Ford said that teaming up may allow for cost savings of up to $500 million per year after 2023 (when cars will start to be marketed). The two companies also discussed working together on electric and self-driving automobiles but talks on the topic were brief as car makers focused on more urgent needs.

Deutsche Bank (DBK.DE) can be found among best performing DAX members for the second day in a row. Today’s superb performance can be linked to the recent money laundering rumours. When the news of Deutsche Bank’s involvement in the money laundering schemes first surfaced, company’s stock suffered. However, the Bank decided to launch an internal probe into the matter and it seems that shareholders are delighted with this fact. In turn, Deutsche Bank is trading 2.5% higher today.