Summary:
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Germany’s growth was flat in Q4 2018 on the back of huge inventories slump
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DAX (DE30 on xStation5) eyes test of the 38.2% Fibo level of the latest major downward wave
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Fresenius SE (FRE.DE) to seek compensation from Akorn for failed takeover
Investors from the Old Continent launched final trading session of the week in mixed moods. Most of the blue chips indices from the Western Europe experienced slight declines in the first minutes after the opening while in the eastern part of the continent bulls dominated. Polish stocks gained the most while Belgian equities took the biggest step back.
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Inventories’ slump offset contributions from private and public spending and investments. Net exports had no effect on the final GDP figure for the Q4 2018. Source: Macrobond, XTB Research
The German Federal Statistical Office released revised GDP data today at 7:00 am GMT. While revisions seldom show major deviations from preliminary readings they are worth to watch as usually they offer much more detailed data. The German economy neither expanded nor contracted during the final quarter of 2018 as GDP remained flat on the quarterly basis. Private consumption rose 0.2% QoQ in the fourth quarter of 2018 while for government spending and capital investment this figure stood at 1.6% QoQ and 0.9% QoQ respectively. Having said that, one may wonder why GDP growth stood at 0% QoQ despite those quite a robust increases. A significant slump in inventories can be named as a reason. Private consumption added 0.1 percentage point to the German growth while investments and government spending added 0.2 and 0.3 percentage point respectively. However, slump in inventories was big enough to offset all the aforementioned contributions. Net exports did not contribute to GDP at all during the final quarter of 2018 (imports and exports had net zero effect on GDP). While recovery in the Europe’s biggest economy is more than desired, outlook remains rather lacklustre given recent depressed survey data. Just a few minutes ago IFO business climate index for February was published and it came in below expectations at 98.5 pts.
Despite yesterday’s lacklustre performance the German DE30 (DAX futures underlying) is pushing higher today. The index is eyeing a test of the 11440 pts handle, where the 38.2% Fibo level of the downward move started at the beginning of the previous year can be found. Source: xStation5
The German authorities may try to stimulate growth by taking more business-friendly approach. According to Reuters report, the German Finance Ministry is planning to grant tax breaks to domestic companies amounting up to €1.5 billion annually. Tax breaks would affect small- and medium-sized companies and would be used to boost Research & Development spending. However, the German officials declined to comment on the matter saying that talks between ministries are still being held.
Major European stock market indices after the first hour of trade:
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DAX (DE30): +0.29%
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FTSE 100 (UK100): +0.25%
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CAC40 (FRA40): +0.25%
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IBEX (SPA35): +0.28%
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FTSE MIB (ITA40): +0.36%
Wirecard (WDI.DE) continues recovery as CEO says there is no reason to worry about business. Source: Bloomberg
Company News
What one may find surprising is the fact that Fresenius SE (FRE.DE) is one of the worst performing DAX stocks today. The company announced that it asked Delaware Chancery Court Judge for approval to seek compensation from Akorn for the failed merger. Fresenius said that if it was not for Akorn’s misrepresentation it would never express interest in the takeover. The German company wants to retrieve as much as $100 million for the case-related costs. A will to fight for its rights should be seen as positive factor for stock price but what are we observing today is just the opposite.
Chief Executive Officer of Wirecard (WDI.DE), Markus Braun said that his company continues to have a strong operating business and that current turbulences on the stock market did not change it. The executive also said that his company will investigate whether to launch a legal action against Financial Times or not. According to Braun, FT reports hinted that there is big balance sheet scandal at Wirecard while in fact issues mentioned by the newspaper would result in a potential revenue drop of just €6.9 million, around 0.35% of company’s annual sales.
Infineon Technologies (IFX.DE) can be found among DAX outperformers today. The company coverage was launched at Cowen, the US investment bank. The Bank started following the stock with an “outperform” recommendation. The one-year price target was set at €26 implying 32% upside from yesterday’s close.
