Summary:
- German DAX gains more than 1% after the first two hours of trading
- The key technical resistance is going to be tested
- Auto stocks (Continental, BMW and Daimler) boost the German index
Tuesday’s trading is passing in excellent mood as European major indices have started the day with some gains. After the first two hours of trading the German DAX is rising more than 1%, being the best performing stock market across the old continent. In terms of any major releases we have not been offered ones recently, hence today’s gains might be considered as rising markets’ expectations regarding the European Central Bank meeting this Thursday. Although the base case is a scenario where the ECB communicates that some steps will be taken at the meeting in September, there is still a 40% probability that the ECB will surprise market participants and cut rates this week. Having in mind that markets have not fully priced in such a scenario, one may suppose that it would be a shocker for them, thereby sending the euro tumbling, bond prices rallying and stock markets jumping as well. Waiting for the ECB meeting let’s take a closer look at the German index DAX (DE30 on xStation platform).
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The H4 time frame seems to serve quite well for analytical purposes, hence we focus on it. First and foremost, the price did not break below 12 200 points earlier this month. It has begun rising since then and it has already come back above the key 60-period moving average closing the crucial resistance placed nearby 12 440 points. We wrote yesterday that this level needs to be broken if bulls want to continue their march. Today, we may say that buyers are on the edge of opening much more space for rises. If they are able to more above this line, it could enable them to attack the supply zone at around 12 640 points. Source: xStation5
What’s driving the German DAX higher today? In short, auto stocks, however, we do not have one reason justifying such a broad-based increase. Therefore, let us move through news regarding the leaders. The first one is Continental being up almost 4.5% at the time of writing of this article. This splendid performance has arisen in spite of the fact that the company slashed its earnings outlook for the full year due to shrinking vehicle production in its key markets including China. Now the company targets adjusted EBIT to be between 7% and 7.5% this year compared to “at least 8%” previously. However, it looks like shareholders were prepared for even a deeper downward revision given the fact that we are seeing decent take-up for Continental shares.
The second one is BMW being up more than 4%. This result has come after the company was upgraded by Morgan Stanley to overweight from equal-weight with the price target set at 75 EUR, implying a 13% increase from the last close. The US bank wrote in its statement that BMW plans to reduce complexity and lead times and spending by as many as 12 billion EUR which could be exactly what the company needs.
The last one is Daimler rising over 3% which could be tied to strengthening ties between the company and its Chinese partner which has decided to buy 2.6 billion euros stake in the Mercedes-Benz maker. “This step reinforces our successful partnership and is a signal of trust in the strategy and future potential of our company,” Daimler CEO Ola Kallenius said.
Auto stocks are leading the gains on Tuesday. Source: xStation5
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