DE30: Bayer surges amid freefalling counterparts

Summary:

• Rout on the stock markets spreads to Europe

• DAX (DE30 on xStation5) manages to defend the 11500 pts handle for now

• Bayer (BAYN.DE) surges as shift in the Monsanto’s weed killer case may be looming

Just as Asian equities followed into the US counterparts footsteps the European shares did the same. Following huge declines on the Asian bourses the major European stock benchmarks opened significantly lower on Thursday. Belgian, Swedish and Russian equities are lagging the most while Hungarian and Polish shares experience declines of the smallest scale. Financials, car makers and refiners take the biggest hit. On the other hand, telecoms as aggregate trade just slightly lower.

DE30 opened at its lowest level since early-2017 today. However, the German benchmark managed to bounce higher from the vicinity of the 11500 pts handle afterwards. Nevertheless, one should keep in mind that the situation is far from containted and bears may return soon. Notice the upper wick showing that part of the initial upwards move was already bruised by the sellers. Source: xStation5

With equities all around the World bleeding from the profit warnings issued amid trade conflict companies in Europe have another reason to worry about in the months to come. Namely, the end of the ECB’s QE programme. Once the money injecting into the debt market will be stopped a jump in borrowing costs will occur. While the jump in government bonds’ yields will not be too dramatic due to the reinvestment policy that the ECB is expected to continue with for some time after asset purchases end, the corporate debt market is not set for similar treatment. In turn spike in corporate yields will be much more distinct. Higher borrowing costs will undermine prospects for the future investment projects and therefore slow the expansion. Adding to that interest rate hikes that will eventually come picture becomes gloomy. While raising rates in order to prevent the economy from overheating is a natural thing impact of such monetary moves is uncertain on economies whose expansion was driven mostly by the QE. And European economy is one of these economies.

Major European stock market indices after two hours of trade:

• DAX (DE30): -1.24%

• FTSE 100 (UK100): -1.77%

• CAC40 (FRA40): -1.39%

• IBEX (SPA35): -1.63%

• FTSE MIB (ITA40): -1.53%

Bayer (BAYN.DE) surges while other DAX stocks slump along with global indices. Source: Bloomberg

Company News

While most of the DAX stocks experience significant declines today there is one company that shines. Bayer (BAYN.DE) surges today after a shift in the Monsanto’s Roundup weed killer case. Roundup is the herbicide that was claimed to be the cause of cancer among numerous US citizen. Monsanto was ordered to pay $289 million fine during the first trial. However, one of the US Superior Court Judges said that the evidence is insufficient to reason the size of a fine. While some claims against Monsanto are likely to remain the total amount of a fine could shrink by as much as $250 million. Such an outcome could alter the outlook on Bayer that has greatly deteriorated after the case was brought up. Bayer acquired Monsanto earlier this year. Hearings in the case are scheduled on Wednesday.

As we have mentioned earlier car makers are among the worst performing European stocks on Thursday morning. However, one German automobile company is coping a bit better than others and that company is BMW (BMW.DE). The company is said to spent as much as $4.1 billion to boost its stake in the Brilliance China Automotive Holding (BCAH). BCAH is the BMW’s partnership in China. BMW currently controls 50% of BCAH and aims to boost its stake to 75%. Following the transaction the German carmaker would have majority stake in the BCAH as well as bigger earnings retention in the World’s biggest market for cars. Moreover, BMW would be the first automobile company to take advantage of the more lenient Chinese policy that allows foreign companies to take majority stakes in their local partnerships.