DE30: European stocks push higher despite declines in Asia

Summary:
- SNB’s low interest rate policy may have created troubles for the property market
- DAX (DE30) defends breakout level at 11680 pts handle
- Commerzbank (CBK.DE) pressured by downgrades, Deutsche Bank (DBK.DE) moves lower

Moods on the Asian stock markets were a bit sour during today’s session. Stocks from Japan, Australia and China all moved slightly lower today while shares in Hong Kong traded in green. In turn, stock from the Old Continent opened mixed. Equities from Germany, France and Netherlands swung between gains and losses in the first minutes of trade. In the Eastern Europe bulls dominated at session launch. Telecoms and miners outperformed while refiners and builders lagged.

DE30 (DAX futures underlying) moved lower yesterday and finished in the vicinity of the breakout level at 11680 pts handle. A spinning top candlestick pattern painted yesterday threatened that we will see a move lower today. However, such scenario did not materialize and the German index is trading higher after the first hour of the cash session. 200-session moving average near 11770 pts handle remains the key level to watch in the nearby future. Source: xStation5

Since Switzerland released CHF from EUR-anchor SNB meetings were often overlooked by the markets. This should not come as surprise as Thomas Jordan, head of SNB, was quite clear that rates are likely to remain at minus 75 basis points as such setting keeps deflationary pressure away. In such landscape banks have little flexibility when it comes to margins and in turn they are less profitable. However, Switzerland may have to cope with a way bigger problem and SNB may be forced to act. Low interest rates mean two things: cheaper money and lower yields. In turn, many Swiss institutional investors decided to look for returns outside, for example, debt market and the choice was property market. As interest rates in Switzerland are at 0% or lower since mid-2011, vast amount of money was pumped into Swiss property market causing prices of residential houses and apartments to increase by over 70% during the past decade. Vacancy rates in some Swiss cities already surpassed 6%, while national average is 2%, hinting that bubble may be about to burst. In turn, Swiss government warned last week that a major correction may be looming over the Swiss property market. SNB is set to announce its interest rate decision on Thursday. While no change in the level of rates is expected, investor should analyze statement for any comments on the condition of the property market.

Major European stock market indices after the first hour of trade:
- DAX (DE30): +0.39%
- FTSE 100 (UK100): +0.47%
- CAC40 (FRA40): +0.21%
- IBEX (SPA35): +0.43%
- FTSE MIB (ITA40): +0.33%

Deutsche Bank (DBK.DE) can be seen among DAX losers today after strong price gains yesterday. Situation looks similar across MDAX members with Commerzbank (CBK.DE) being one of the biggest laggards. Source: Bloomberg

Company News

Yesterday we wrote about launching an official merger talks between the Deutsche Bank and Commerzbank and suggested that both companies are likely to enjoy increased coverage in the nearby future. The latter came true just a day later. Commerzbank experienced some downbeat analyst action today as it got downgraded at RBC (from “outperform” to “sector-perform”, price target €8) and Nord/LB (from “hold” to “sell”, price target €6.35). Apart from that, DWS Group, the Deutsche Bank subsidiary, was also downgraded at DZ Bank. In turn, both lenders are trading lower today.

5G auctions start today in Germany therefore more volatility than usual may be spotted among German telecoms: Deutsche Telekom (DTE.DE), Telefonica (O2D.DE), Vodafone (VOD.UK) and United Internet.

Fraport (FRA.DE), the company operating airport in Frankfurt, is one of the worst performing MDAX stock today. The company proposed a better than expected dividend of €2 per share. However, some analysts argue that last year’s free cash flow does not warrant such dividend therefore it is likely that the company will pay it out from equity rather than actual earnings. However, what bodes well for the future is fact that Fraport failure to deliver reasonable free cash flow was a result of doubling capital expenditures.

Fraport (FRA.DE) had a hard time throughout the past year. The stock dipped after reaching new ATH above €97 euros in late-January 2018. Share price rebounded in 2019 but further upside may be limited as 200-session moving average (purple line) holds firm around €73 handle. On the other hand, 23.6% Fibo level of the last major downward impulse should be the first level to watch for bulls. Source: xStation5a