DE30 erases morning bounce and revisits 12,700 pts

• Indices retreat after US presidential debate

• DE30 fails to break back above 12,800 pts in morning bounce

• Covestro (1COV.DE) announced €1.6 billion acquisition

European indices launched today's trading on a back foot following chaotic presidential debate in the United States. The debate was chaotic and lacked substance - candidates kept interrupting and insulting each other. The key takeaway from the Biden-Trump showdown is that elections may be even more contested now and that there may be some issues with accepting the results. Markets do not like such uncertainty and it is reflected in today's pullback.

Source: xStation5

DE30 pulled back overnight as chaos during the US presidential debate spooked investors. Downward move was halted ahead of the European cash session open near 12,665 pts price zone (61.8% retracement). However, subsequent bounce failed to bring the index back above the 12,800 pts mark and a renewed wave of selling started. A point to note is that after peaking near 12,900 pts yesterday morning, DE30 has painted a lower high and a lower low signalling that declines may resume for longer. Reaction to the aforementioned support at 12,665 pts will be crucial as breaking below it would pave the way for a test of the 78.6% retracement near 12,500 pts. ADP employment report is a potential risk event but given its poor track record in the post-pandemic world, markets may look past a reading that will deviate significantly from expectations.

DAX members at 10:16 am BST. Source: Bloomberg

Company News

Covestro (1COV.DE) is plunging today following M&A news. The German plastics maker will acquire resins business from the Dutch Royal DSM for €1.6 billion. Acquisition will boost sales by around €1 billion and earnings by around €140 million. Purchase will be financed with cash, debt and new equity. Equity offering is said to amount to €450 million.

According to media reports, Lufthansa (LHA.DE) will release around 700 pilot students from their contracts without seeking repayment of training cost. Decision comes as a slump in air travel makes it unlikely for the German carrier to be in need of new pilots in the years to come. Training costs are usually repaid by pilots a few years after finishing flight school. Cost of training one pilot ranges between 60 and 80 thousand euros.

Merck (MRK.DE) said that it will reverse provision related to the patent court ruling after a US judge ruled in favour of the German company. Provisions that will be reversed amount to €365 million.

Covestro (1COV.DE) pulled back from the €46.50 price zone following M&A announcement. The stock is more than 6% down on the day and looks towards long-term support ranging around €41.35 handle. Should it break below it, attention will shift towards €38 swing levels. Source: xStation5