DE30: European stocks begin the day softer despite gains on Wall Street

Summary:

• The beginning of Wednesday’s trading across European equity markets bring moderate falls
• DAX (DE30) fails to move back toward its ascending channel once again, the pivotal resistance to watch for
• Munich Re (MUV2.DE) falls over 3% following weakish second quarter earnings

In spite of the fact that US traders took US indices (US500 and US100) close to their highs, European markets have begun Wednesday’s trading on a softer footnote. One explanation behind such a scenario might be quite a heavy decline in the Chinese Shanghai Composite which ended the day 1.3% lower even as the country’s trade data turned out to be quite reassuring (exports grew more than forecast despite the tariffs imposed on $34 billion Chinese goods imported to the US - the falling yuan may have more than offset the duties’ adverse effect). On the other hand, the trade surplus with the United States shrank only modestly suggesting that trade tension are unlikely to recede any time soon. Indeed, the US said on Tuesday that it would begin charging a 25% tariff rate on additional $16 billion Chinese goods beginning with 23 August (this move had been expected as it constitutes part of the entire $50 billion package announced earlier). Taking into account that China seems to be ready to retaliate once may suppose that the trade spat between the two world’s largest economies could even worsen. As a result, European investors share more continence this morning, though bulls do not seem to be doomed to failure at all.

The DE30 rejected to break its crucial resistance yesterday, the price reversed thereafter. Source: xStation5

From a technical angle the daily chart seems to confirm our assumptions we outlined in yesterday’s analysis. We suggested that the price could find it hard to move through the lower bound of its medium-term ascending channel (orange lines). Indeed, it had difficulties and, as a consequence, the German index made a retreat. Nonetheless, the price has slipped into another channel (blue lines) which its lower bound has been already successfully tested. The broader outlook remains the same though. The price would have to break through 12750 points in order to enable itself to move much higher. Otherwise, a breakdown of the lower limit of the blue channel would see the price falling even toward 12100 points, but this is not the case until US indices are continuing to climb. As one may spot at the chart above while the DE30 has increased just moderately over the recent days, the SP500 (US500, the light blue candlesticks) has essentially surged and approached its all-time high.

The Munich Re (MUV2.DE) is the worst performing stocks within the DE30 this morning following disappointing second quarter earnings. Source: Bloomberg

The Munich Re is the world’s largest reinsurance company owning almost a 100% stake in Ergo Group. Today’s declines result from the sub-par earnings for the second quarter. Operating profit fell 13.7% to 977 million EUR missing the median estimate of 1.1 billion EUR as gross premiums written declined 5.2%. The firm confirmed the fiscal year net profit target of 2.1 billion EUR to 2.5 billion EUR and gross premium written of 46 billion EUR to 49 billion EUR. Moreover, the company’s CEO Joachim Wenning declared that the firm will stop investing in bonds and shares of companies reaching their profit (in the amount exceeding 30% of total profit) from coal-related sectors. The decision was made under shareholders’ pressure who demanded such a move.

The MUV2.DE has opened with a huge bearish gap as investors have decided to dump shares in response to the Q2 earnings. The first more notable support might be found in the vicinity of 176.5 EUR. Source: xStation5