DE30: Volkswagen to leave Iran amid US sanctions

Summary:

• Draghi urges development of the fiscal stabilization tool ahead of the next crisis

• DAX (DE30 on xStation5) moved over 3% higher in the past two weeks

• Volkswagen (VOW.DE) set to cease operations in Iran after talks with US authorities

Asian equities headed lower overnight following a mixed session on Wall Street yesterday. The Japanese Nikkei (JAP225) closed flat while the Australian S&P/ASX 200 (AUS200) moved 0.33% lower. Stock indices in China are trading subtly below break-even line.

In Europe we saw a green opening on Thursday. Almost every major benchmark from the region moved higher in the first minutes of trade. However, German equities lagged a bit behind other European peers. No clear outperformer could be spotted among European blue chip indices at the beginning of today’s trading session. Miners led gains while real estate and travel companies lagged the most following an opening.

DE30 continues to climb higher. The German benchmark added over 3% since it bottomed 2 weeks ago. An upward move towards the resistance zone ranging 12380-12420 pts seems to be a base case scenario for now. However, one should be aware that in case trade conflict between China and US keeps intensifying the European equities may be hit by a ricochet. Source: xStation5

Mario Draghi, the President of the European Central Bank, delivered a speech in Berlin yesterday in which he urged European leaders to develop a risk sharing fiscal tool. Draghi meant euro-area fund that would complement the monetary policy and strengthen EMU ahead of next crisis. The fund would bolster stability in the euro area as a bloc and in each member country alone. The need of developing such a fiscal tool was raised in the past by both ECB and European member country leaders but no significant progress have been made. European leaders are said to eventually strike a deal on key tools that would enable to deepen economic and monetary union in December. However, according to latest leaks current state of talks on the aforementioned fiscal tool is far from consensus.

Major European stock markets after the first hour of trade:

• DAX (DE30): +0.23%

• FTSE 100 (UK100): +0.09%

• CAC 40 (FRA40): +0.39%

• IBEX (SPA35): +0.40%

• FTSE MIB (ITA40): +0.55%

Bayer (BAYN.DE) and banks lead DAX gains today. Source: Bloomberg

Company News

The US ambassador to Germany, Richard Grenell, confirmed that after weeks of talks Volkswagen (VOW.DE) decided to comply with the US sanction on Iran. In turn the German carmaker will cease all of its operations in the country. Volkswagen’s business in Iran was rather small therefore the decision should not impact company’s earnings significantly. However, let us recall that in summer 2017 the company announced that it is planning to begin selling cars in Iran for the first time in 17 years therefore such a shift could undermine company’s expansion into new markets.

Bayer (BAYN.DE) is one of the DAX outperformers today. The German pharmaceutical company was upgraded at Citi to “buy”. The Bank reasoned its recommendation by saying that the sentiment already hit rock bottom and resulting risk-reward ratio is “difficult to ignore”. Let us note that the stock was downgraded at Citi to “neutral” just 5 weeks ago.

Volkswagen (VOW.DE) managed to climb back above the long term upward trendline recently. The stock is approaching the resistance zone ranging €152.70-155.20. Source: xStation5