DE30: Mixed Commerzbank earnings send stock price lower

Summary:

• German equity market leads the gains as European markets open
• German industrial output for June disappoints matching the economic growth slowdown expectation
• Commerzbank (CBK.DE) presents better profit and revenue but profit margins shrink sending the stock price lower

European stock markets have begun the day clearly higher following decent gains made across Asian equities. Having the first hour of trading already passed one may sum up that the German DAX (DE30) is decisively leading the gains adding almost 0.8%. Notice that better moods among German investors should not stem from the latest slew of manufacturing data coming from the domestic economy.

Let us remind that we were offered disappointing factory orders yesterday. Today industrial output for June also turned out to be sub-par bringing the numbers far below expectations. In monthly terms industrial productions decreased 0.9% falling short of the expected 0.5% drop whereas in annual terms we got a 2.5% increase which however also missed the consensus placed at 3%. Taking a quick look at the details of the release one may conclude that weaker production number we were given over the past 24 hours stemmed mainly from external weaknesses. Notice that a decline in factory orders for June (released on Monday) was driven predominantly by a fall in non-EU orders. One may ascribe the similar story to industrial production, but with a doze of uncertainty of course. Namely the separate release this morning showed an amazing increase in the German current account balance showing a 26.2 billion EUR surplus compared to a 21 billion EUR rise expected. Trade balance showed also a higher surplus than forecast contributing the the general surge in terms of the entire current account.

German industrial output fell short of the median estimate in June. Source: Macrobond, XTB Research

What drove this rise when it comes to trade balance? While exports stayed flat (in seasonally-adjusted monthly terms) imports jumped as much as 1.2% exceeding the median estimate at 0.3%. It suggests that the domestic demand remains robust but if one want to find some flaws they might be localized almost always. In this particular case (German industrial output) we may notice that output in durable goods has fallen of late unlike non-durable goods production which has risen. It may reflect changes in demand for these kind of goods. Given that consumers tend to stop buying durable goods compared to non-durable goods once the economic backdrop worsens one may arrive at a conclusion that the German has become less optimistic with respect to the economic future.

The German DE30 is rallying this morning despite the blurry outlook for the manufacturing sector. Source: xStation5

From a technical angle we may spot that the German index is approaching the lower bound of the ascending channel. However, based on the past a breakout of this level should not be taken for granted as the price made the sudden retreat yesterday after failing to move into the channel. Therefore, a possible continuation of the downward move remains the base scenario unless the price closed the day above 12750 points.

Commerzbank (CBK.DE) is trading lower following the unequivocal earnings report. Source: Bloomberg

Looking into the breakdown of the DE30 one might notice that Commerzbank is clearly standing out the most unfortunately negatively. The German lender reported higher than expected net profit, operating profit as well as revenue for the second quarter but its profit margins shrank substantially. On top of that the bank’s core capital level was dented as well making analysts fussed with regard to the future performance. Note that a beat was chiefly driven by non-core divisions which casts a shadow on the sustained improvement in the quarters to come. For instance, the retail banking and corporate sectors lagged behind. The company had 8 buys, 15 holds and 6 sells recommendations as of this morning.