DE30: Daimler shares dive on another profit forecast cut

Summary:

• European equity markets start Monday’s trading with moderate gains
• Daimler (DAI.DE) shares plummet following the third profit forecast cut this year
• BMW accelerates its electric-vehicle strategy and wants to roll out 25 types of such cars by 2023

This week could be crucial for market participants due to the G20 summit in Japan and a Trump-Xi meeting which is to take place during that time (June 28). However, from a stock markets’ point of view the outcome of this meeting does not seem to be unequivocal because of the latest Federal Reserve meeting last week. Let us recall that the Fed decided to keep rates unchanged but it simultaneously (implicitly) signalled a possible rate cut in July. Nevertheless, one could read between the lines that this rate reduction (possibly arriving in the next month) will depend mainly on further developments on a trade front - therefore all appears to come down to the Trump-Xi meeting in Japan later this week. On the one hand, if both presidents find a solution to the trade dispute it should be a positive information for markets as it would reduce risks to global economic growth. On the other hand, if this happens it could mean that the Fed will want to wait some time before cutting interest rates. Looking at what has happened since the latest Fed meeting across stock markets one may suppose that a rate cut delay could act to the detriment of equities. Nonetheless, one needs to be cognizant that the Fed always delivers what markets want (this was the case in the past - when the market-based probability exceeded 50/60% for any scenario the Fed materialized this scenario). Thus, any rate cut postponement seems to be possible only if market participants reduce their expectations as for this move in July. So far this likelihood points to 100% chance for a rate cut next month.

On H1 interval the German index DAX is trading close to the support area. There is a possibility for a corrective move after last week gains. First bearish signals have already occurred as the price has slid under  the SMA and one can see the SHS formation from classic technical analysis, which often heralds a downward move. The key support is located around 12 200 pts. Only after breaking this level, the bigger correction move could occur. Source: xStation5

Looking into D1 interval the first selling signal can also be seen. The price is very close to the peaks, but the risk of correction is high. On the other hand, a move through the 2019 highs may give strong upward impulse. Source: xStation5

The beginning of Monday’s trading has been quite positive for European equities as most of them opened higher. However, some gains have been pared since then and major indices are trading rather flat after less than an hour of trading. Looking into the DE30 it is worth focusing on two stocks. The first one is Daimler (DAI.DE) being more than 3% down this morning after the company decided to slash its profit forecast for the third time in a year mainly due to a diesel emissions scandal. Let us recall that the company faced investigations in Europe and the US last year over excessive pollution from its diesel vehicles.

In turn, BMW (BMW.DE) shares are losing more than 1% at the time of writing being under pressure of negative sentiment to auto-related stocks. Meanwhile, the company informed over the weekend that it was accelerating its electric-vehicle strategy wanting to roll out 25 types of such cars by 2023 (two years earlier than initially thought). Harald Krueger, CEO of BMW, said that he wanted to increase unit sales of electric cars by at least 30% per year.

Daimler (DAI.DE) is leading the losses this morning following another profit forecast cut made by the company. Source: Bloomberg