DE30: Equities from Western Europe erase morning losses

Summary:

• Macron and Merkel to meet ahead of the EU summit to discuss Brexit

• DAX (DE30 on xStation5) still tries to break above the 12355 pts handle

• Bayer (BAYN.DE) outperforms on the back of positive analyst action

Following gains achieved on Wall Street yesterday Asian equities also moved higher during today’s session. However, some weakness could be seen among the Australian companies as S&P/ASX 200 (AUS200) index erased 0.96%. Apart from that, the Japanese Nikkei (JAP225) added 0.19%. In China Hang Seng (CHNComp) is trading 1.05% higher.

Majority of the European blue chips indices opened lower on Tuesday. Benchmarks from Spain, Germany, Italy and France were trading below their yesterday’s closing prices in the first minutes of trade while equities in Russia, Poland and Sweden managed to produce minor gains. All 19 industry subindicies of the Euro Stoxx 600 index showed weakness during the opening with the biggest declines seen among media and travel companies.

It is getting more and more probable that the Brexit draft will not be ready ahead of the European Union leaders summit on September 20. It is said to be one of the reasons why French and German leaders will meet at the beginning of September. During meeting in Paris Angela Merkel and Emmanuel Macron will discuss issues connected with the UK departure from the EU. Among other issues leaders are said to discuss immigration as well as European Parliament elections that will take place in 2019 after Brexit is conducted. Having said that, investors should be aware that the incoming news flow on the day of the meeting may produce wilder price swings on some of the European assets.

Major European stock markets after the first hour of trade:

• DAX (DE30): +0.25%

• FTSE 100 (UK100): -0.29%

• CAC40 (FRA40): +0.18%

• IBEX 35 (SPA35): +0.36%

• FTSE MIB (ITA40): +0.33%

DE30 tests the resistance level at 12355 pts. Source: xStation5

In line with our previous analysis DE30 climbed to the resistance level at 12355 pts. The German benchmark failed to break above yesterday but after a brief pullback it is testing the aforementioned resistance once again. If bulls manage to overcome this obstacle the next stop could be the 12450 pts area. Nevertheless, one should keep in mind that the 33-moving average (green line on the chart above) boosts the significance of the 12355 pts area therefore a break higher could be harder to achieve. In case buyers surrender one cannot rule out a possibility of price pulling back to the prior swing level at 12150 pts.

Bayer (BAYN.DE) outperforms other DAX components on the back of the positive analyst action. Source: Bloomberg

Company News

Bayer (BAYN.DE) has found itself under pressure following its takeover of Monsanto. Monsanto has faced trial over its Roundup product as it was believed that it was a cause of cancer. In the first half of August the company has lost the court case what ignited a sell-off of Bayer shares. Stock price plunged over 20% since the beginning of the month but managed to recoup some losses. It lead to the situation where some analysts, for example professionals from Berenberg, claim that the market overreacted and that Bayer is “extremely discounted” now. In turn Berenberg decided to upgrade the stock to “buy” prompting a positive price action. As a result Bayer trades as DAX leader.

Bayer (BAYN.DE) took a dive following the announcement of the verdict in Monsanto’s Roundup case. Source: xStation5