DE30: Deutsche Bank shares decline after merger talks collapse

Summary:

• Mixed start to Friday’s trading across European equity markets
• Has the DAX already ended another corrective move?
• Deutsche Bank shares suffer from lowered revenue outlook after merger talks collapsed

After some declines seen on Wall Street yesterday and in China on Friday the opening in Europe has been quite mixed. The German DE30 is hovering around the flat line while indices from the UK, Italy and Spain are falling about 0.4%. Although we have been offered some warning signs recently like weak PMIs and a dismal Korean GDP print, bulls in the German stock market do not seem to back down. Technically the price has been moving within the bullish trend since April 10 and each attempt to break this pattern failed.

The price is again bouncing off the blue trend line and from this point of view one may expect a rise beyond the most recent highs. If so, a more significant target for bulls can be set at around 12570 points, this the line where some buyers may consider quitting the market. On the other hand, a breakdown below this line would allow sellers to move down even toward 11820 points. Keep in mind that today’s GDP reading from the US could affect sentiment on Wall Street and thereby European indices alike. Source: xStation5

Looking at the DE30 breakdown one may notice that Deutsche Bank are standing out the most declining as much as 3.3% in early trading hours. This underperformance is a result of a collapse of merger talks with Commerzbank. Namely, after experiencing its ninth consecutive quarter of contraction, Deutsche Bank chose to cut its full-year revenue. What’s more, a lack of merger also gave some reasons to cut the outlook for the remainder of 2019. The German lender informed that it expects business to be flat this year. Let us recall that its first quarter income from securities trading declined 19%, the result proved to be weaker compared to an average result registered by its US competitors. Other numbers from the first quarter statement showed a 9% decline in revenue, a 48% rise in net income. In terms of the talks themselves, Deutsche Bank informed that a historic deal with Commerzbank would be too difficult to execute. Having in mind a ubiquitous fight with “too big to fail” financial institutions it seems that the merger talks break-up could be positive. Keep in mind that Deutsche Bank is already a gargantuan company with many cross-border connections.

The DAX is hovering around the flat line in early European trading hours on Friday. Source: xStation5

The second stock of note is Continental rising more than 2%. The company informed on Friday that its first-quarter earnings dropped, however, it confirmed the guidance for the entire year. During the first three months of the year adjusted EBIT fell to 884.2 million EUR from 1.07 billion EUR in the same period last year. At the same time, revenue climbed 0.3% to 11.05 billion EUR. Note that Continental still continues a revival in economic activity in the second half of the year which is the prime reason why the whole-year outlook was maintained. Moreover, the company informed that it was moving ahead with plans to carve out its powertrain division. This division makes components for combustion and electric-powered vehicles and preparations for IPO should be completed around the end of the second half of the year.