DE30: Cautious optimism across European equities despite upbeat Chinese data

Summary:

• European equities are trading prettly flat despite upbeat data from China
• DAX (DE30) trades in the vicinity of the important resistance
• Wirecard gains more than 3% as German’s financial regulator advises to investigate investors who made bets against the company

The beginning of Wednesday's trading across European stock markets has been quite muted in spite of the fact that a bag of Chinese data surprised to the upside. Before we write about China's data let us start with a technical overview of the German DAX. First of all, one may notice that the DE30 is trading in the neighborhood of the crucial supple zone placed somewhat above 12100 points. From a pure technical viewpoint this zone could constitute a hard nut to crack for bulls - the price failed to break this area two times in 2018. Having assumed that we have already reached a local peak, one may forecast a possible pullback toward 11600/700 points, the demand area being also underpinned by the 23.6% retracement of the latest leg higher. Moreover, this area could also be supported by the 50DMA running currently slightly below this zone. Thus, this week’s close could set sentiment for the following week after investors will come back after the Easter break.

The DE30 is trading in the vicinity of its relevant resistance. Source: xStation5

What conclusions can be drawn from the Chinese data? Looking at the macro releases from the Chinese economy one may arrive at a conclusion that the world’s second largest economy was remarkably resilient to a slowdown in industrial activity seen in Europe during the first two month of the year. Setting aside a lot of doubts that usually occur regarding China’s data one may conclude that March could have been a turning point for the global economy. However, there is also a risk that it was just a short-lived (and broad-based) improvement caused mainly by a US postponement of higher tariffs as well as the government’s announcement concerning VAT cuts and infrastructure investments. Getting back to manufacturing PMI from China for March let us recall the remarkably important point - an uptick in employment, for the first time in 5 years. In our view, it could have been a sign of a more sustained improvement in sentiment (employers usually increase wages before they decide to hire new staff). If this assumption is to be true, we ought to see another quite decent PMI for April. The last point we would like to make here is the fact that investments in fixed assets in March were again driven by the public sector rising 6.7% YoY (the fastest pace since March 2018), reflecting Beijing’s efforts to revive economic growth. At the same time, the private sector investments were higher 6.4% YoY, the slowest pace since December 2017. What is the conclusion? To get a more sustained recovery in overall investments in fixed assets one needs more activity of the private sector.

Wirecard (WDI.DE) leads the gains within the DE30. The German index trades flat after one and a half hour of trading. Source: Bloomberg

The company news:

• Wirecard shares are up more than 3% after the German watchdog asked Munich prosecutors to investigate investors who made bets against the company; the company has gained more than 11% so far this week

• German carmakers (VW, BMW, Daimler) are trading slightly higher this morning despite another (seventh in a row) decline in EU car sales