DE30: Chinese PMIs don’t daunt equity investors

Summary:

• Flat opening across major European equity markets
• DAX breaks the support line, what to expect next?
• Alphabet shares plunged in after hours trading in response to earnings
• Lufthansa halts Eurowings capacity growth

Stabilization - this is a good word describing changes in both European and Chinese PMIs for April. While the stabilization in Europe took place at recessionary levels, in China sentiment remained above the 50-point mark in April. Although Chinese PMIs missed expectations they have not daunted European investors as a majority of stock markets have opened pretty flat. Before we move to a technical analysis let us yet focus on PMIs released overnight from China. On the one hand, the official survey showed an improvement in new export orders, suggesting foreign demand may have already bottomed out. On the other hand, the Caixin survey showed a deceleration in new export orders while domestic demand remained quite stable. The latter could have been an effect of the measures announced by Beijing earlier this year including VAT cuts, increased infrastructure spending and some tax breaks for small firms. To sum up, a set of Chinese PMIs was neither a breakthrough nor a comeback to recessionary levels.

Technically the DE30 has found itself in an interesting point after breaking below the short-term upward trend line yesterday. In theory the price could fall at least toward 12 125 points. However, the second scenario is the price will be moving within a range in the short-term before any breakout/breakdown comes up. Source: xStation5

Before we start analyzing companies listed in the DE30 let us mention yesterday's earnings of Alphabet. The company produced EPS of $11.9, beating the median estimate of $10.6. However, revenue slowed down more than expected to $36.3 billion (exp. $37.3 billion) suggesting the company’s failed to continue expanding over the first three months. The pace of ad revenue decreased to 15.3% YoY, down from 19.9% YoY in the fourth quarter. Moreover, paid clicks on Google properties increased only 39% YoY, well below the levels seen in the prior two quarters - 66% and 62% respectively. One needs to remember that Alphabet recorded a material $1.7 billion fine from the European Commission in the first quarter for stifling competition in the online ad sector.

Lufthansa is leading the losses in early European trading hours. Source: Bloomberg

Lufthansa shares (LHA.DE) are down more than 2% this morning following a report the company halted capacity expansion at its Eurowings subsidiary citing a squeeze in margins due to rising fuel costs, low ticket prices. Apart from this announcement, the company said it still expected adjusted operating margin of between 6.5% and 8% this year, anticipating an improvement in the aviation market later in the year.

In turn, Beiersdorf shares (BEI.DE) are up more than 3% after the company showed first quarter earnings beating the highest estimate. Revenue was 1.95 billion EUR compared to a range of forecasts between 1.82 and 1.88 billion EUR. The company sees its operating margin at 14.5% this year while sales should increase between 3% and 5%. The company is a manufacturer of personal care, disposable medical, and adhesive products.