Summary:
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Stocks in Europe begin the week on the wrong foot as investors digest the weak trade data from China
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It’s a mistake to blame German carmakers for Italy’s industry woes
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Daimler (DAI.DE) is open for a collaboration to share cost-intensive technology shifts
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Continental (CON.DE) presents a gloomy outlook for the first half of 2019
Following the remarkably weak trade data published from the world’s second largest economy European stock markets have begun the new week on a wrong foot as concerns over the global economy intensified. This data added to downside pressure weighing on the global stock market thereby contributing to the underperformance of European indices. Let us get back to the China’s trade data for a while to notice that the 2018’s trade surplus was made chiefly (90%) through trading with the US signalling that trade tensions between the world’s two largest economies are unlikely to settle down any time soon. Therefore, we think that the upcoming weeks, when a truce applies, ought to be particularly important for the global economy.
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As the new week has just kicked off it is worth looking at the weekly time frame to notice one important thing. Namely, do notice that despite the encouraging technical pattern we saw two weeks ago (the morning star), bulls pulled the index higher only marginally last week. Thus, the resistance of 11100 points stays in place and one may suppose that it could be too hard for buyers to break this line. So, our base scenario sees the price reversing from this resistance and then falling beyond the recent low. Source: xStation5
Looking at today’s macroeconomic calendar it is worth focusing on industrial production data from the Eurozone for November. Numbers released by other countries including Germany, France and Italy call for the massive decline for the entire bloc. The prime reason being repeated by market observers is the German car industry. While it could be true for German industrial output itself, it seems to be a wrong conclusion when it comes to the Italian industrial output.
German carmakers’ reliance on Italy-based plants appears to be too small to influence the Italian industrial sector substantially. Source: Bloomberg
According to Bloomberg’s calculations the value of goods produced in Italy to meet demand from German carmakers is small and thereby it is highly unlikely that it has impacted the Italian sector markedly. The same case applies for France, whereas the other story might be told in Hungary and the Czech Republic. The data for the Eurozone will be released at 10:00 am GMT.
The German DE30 is falling 0.3% at the time of writing while Wirecard and Beiersdorf being the worst performing stocks. Source: Bloomberg
The quick summary of the first trading hour on Monday shows that the Italian FTSE MIB has been the worst major index in Europe losing almost 0.8%. Other important indices have been down roughly 0.4%. Note that the positive session for Deutsche Lufthansa (LHA.DE) has stemmed from the fact that the company expects a much smaller increase in fuel costs this year than initially thought. The firm said that such costs could rise to 6.3 billion EUR in the current year, in November the company had estimated a rise to about 7 billion EUR.
As far as the auto industry is concerned it is worth focusing on two companies - Continental (CON.DE) and Daimler (DAI.DE). In case of the former company we got a gloomy outlook from the firm for the first six months of 2019 caused by a range of factors led by a sinking Chinese market. In late 2018 Continental had signalled that a turnaround for the global car market might take place, but this hope was given up during the second week of the new year.
In turn, Daimler’s incoming CEO informed that he was open for a collaboration with other carmakers and technology firms in order to share the burden of the industry's costly technology shifts. Note that the company is currently merging its car-sharing offerings with German peer BMW to boost scale and even deeper tie-ups are being mulled over as well.
