⏬DE40 Plunges 1.5% Despite Better Data

4:58 pm 30 October 2024

European indices are experiencing a downturn following the release of disappointing earnings from European companies, including Volkswagen, despite better economic data

European indices are experiencing a downturn following the release of disappointing earnings from European companies, including Volkswagen. European equity markets, particularly the Euro Stoxx 50 and the German DAX, are grappling with significant challenges mid-week. The situation is exacerbated by the troubles of major European companies such as Volkswagen, which is struggling with declining profits and potential factory closures.

Volkswagen's Drastic Profit Decline and Restructuring Plans

Volkswagen's latest financial results are disappointing. Operating profit has plummeted by 42% in the third quarter, leading to a significant decline in the company's operating margin. The situation demands drastic action from the company's management.

To address these issues, Volkswagen is considering closing several German factories and implementing significant job cuts. These plans have sparked controversy and potential labor disputes, further complicating the company's situation. A closer look at the data reveals that Volkswagen's namesake brand posted an operating margin of just 2.1%. Interestingly, the company's shares are currently gaining after the negative loss, which could be attributed to investors anticipating even weaker data than what was presented.


The company showed the lowest operating margin in many years. Source: Bloomberg Finance LP

Impact on the European Economy

Volkswagen's problems are symptomatic of broader economic challenges in Europe. The region is grappling with low economic growth, high inflation, and rising energy costs. The potential impact of Volkswagen's restructuring on the German economy, the largest in Europe, could exacerbate these challenges.

The combination of Volkswagen's troubles and broader economic issues is weighing heavily on European equity markets. Investors are becoming increasingly cautious about investing in European stocks as the region faces a difficult outlook.

In contrast, U.S. stocks continue to perform well, benefiting from a stronger economic recovery and positive corporate earnings. This divergence in performance between European and U.S. markets is likely to persist in the near future.

DAX stocks performance

It's worth noting that a significant majority of companies in the German DAX are losing value today. The exception and top performer is Volkswagen, which is gaining today, but from a year-to-date perspective, the stock has declined by 20% and has a weak influence on the outlook for other German companies.


Source: Bloomberg Finance LP

Economics data

It's also worth mentioning a number of data releases today. Germany's GDP has exceeded market expectations. GDP grew by 0.2% year-on-year, compared to the expected 0.1%. However, the previous data was revised from 0.3% to 0.1%. Quarter-on-quarter, we don't see the expected decline of 0.1% but instead have a growth of 0.2%. Nevertheless, this is related to a lower base: the previous reading was revised from -0.1% to -0.3%. Moreover, inflation numbers came out higher than expected with CPI at 2.0% compared to 1.8% expected and 1.6% previously. 


Source: Bloomberg Finance LP, XTB

Technical perspective

Technically, the DAX40 is experiencing a significant pullback today, which is also linked to the recent sharp decline in Volkswagen's share price. The DAX40 has fallen to its lowest level since October 11th, marking the strongest pullback since September 6th. Interestingly, seasonality suggests a rebound in the DAX40 in the near future. It's also worth mentioning the so-called "Trump trade," which is associated with protectionist policies. The tariffs imposed during Trump's previous presidency had a very negative impact on German companies, especially those producing cars. As a result, the growing chances of Trump winning again are also weakening the situation on European indices. Key support levels for the German DAX are at 19,200 at the 23.6 Fibonacci retracement and at 19,000 points.

 

 

The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.

Share:
Back

Join over 1 600 000 XTB Group Clients from around the world.