DE30: European markets collapse on oil shock

• European markets plunge on oil price collapse

• DE30 bounces higher after test of 10400 pts price zone

• Lufthansa (LHA.DE) will seek government support

Global stock markets bleed on Monday following a collapse in oil price. Some of the European indices were dropping as much as 10% after the opening of Monday’s cash session. However, losses started to fade and bulls are trying to push indices higher. 

DAX draws parallels to financial crisis collapse?

Taking into account today’s decline, DAX is over 20% off the all-time high. It took just 12 sessions for the index to make such a steep drop. When was the last time the index made 20+% correction in such a short period of time? The most recent similar situation occurred in December 2007-January 2008 - the very start of the global financial crisis. DAX dropped 20.2% during 16 sessions following a peak on December 28, 2007. However, as we have noted at the beginning, this time DAX declined more than 20% over the course of just 12 sessions. However, DAX stabilised and traded in range during the month following 2007-2008 plunge.

Source: Bloomberg, XTB Research

DE30 plunged today along with other global stock markets. The drop was triggered by massive plunge in the oil price caused by Saudi Arabia’s actions over the weekend. The German index tested price zone ranging above 10400 pts after opening of today’s cash session and has been moving higher since. The question is whether the index manages to hold above the support at 10750 pts until the end of the day. Should it do so, the market may be set for some stabilization. On the other hand, break back below the aforementioned support would call for another test of the price zone at 10400 pts. 11300 pts handle is the nearest resistance to watch. Traders should brace for elevated volatility at 1:30 pm GMT when US markets open.

Source: xStation5

Scale of decline in Deutsche Lufthansa (LHA.DE) share price can be seen as limited in comparison to other DAX members. The German carrier said it will look for government support as the fallout from the coronavirus outbreak turns out to be more severe than the company initially expected. The support could be in form of government subsidies for wages lost due to temporary activity halts.

Deutsche Bank (DBK.DE) is the worst performing DAX stock on Monday morning. The company confirmed that one of its employees in the Gelsenkirchen branch tested positive for coronavirus. Moreover, European banks are trading lower today due to uncertain outlook for the heavily indebted oil industry. Deutsche Bank trades around 10% lower.

Analyst actions

• Deutsche Bank maintained “hold” recommendation for Continental share (CON.DE). Price target was cut to €90

DAX members at 9:27 am GMT. Source: Bloomberg