DE30: European markets attempt to recover, upbeat industrial data

Summary:

• European equity markets have started the day with moderate price rises
• German factory orders surprised to the upside, the details do not look so well though
• Deutsche Post reports strong earnings, the stock leads the gains

Recent hours have been remarkably tumultuous across financial markets with tremendous declines in equities from Asia to the US as investors were digesting negative information regarding the US-China trade war. Let us note that Beijing refrained from setting the reference point for the onshore yuan above 7 despite another accusation from the White House that Beijing deliberately devalues its currency to offset a negative impact coming from the US lately announced duties. This move has improved sentiment at the middle of the Asian session and positive mood is also seen in Europe. The first 30 minutes of trading have brought moderate gains in France, Germany and Italy while the Spanish IBEX (SPA35) has fallen so far. On top of that, market sentiment may maintain its bounce after a release of German factory orders for June showed much stronger than expected numbers. Orders in the German economy rebounded 2.5% in monthly terms led by a robust 5% rise in foreign orders (especially in those coming from non-Euro Area countries - this category jumped as much as 8.6%, the most since mid-2014). At the same time, the data showed that domestic demand remains sluggish with orders declining 1%, the largest monthly decrease since March. Overall, the data cannot be considered as a breakthrough in a widespread weakness in the German industrial sector. Thus, this release should not affect the ECB’s notion pointing to a resumption of monetary policy easing next month.

After dismal past several days the German DE30 is experiencing some gains in early trading on Tuesday. However, from a technical point of view, we are a long way off from a spectacular comeback to the bull trend. First, buyers may struggle nearby 11730 points, the level underpinned by the 38.2% retracement of the swing between the end of 2018 and the beginning of July. In addition to that, the broken blue trend line in conjunction with the 200DMA could constitute a major resistance which could be tough to crack at a time when US-China relations are likely to deteriorate further. Source: xStation5

Looking into the DE30 breakdown one may notice Deutsche Post shares clearly standing out. The stock has already gained more than 4% after second quarter earnings showed impressive resilience in the face of macroeconomic headwinds. Operating profit was 769 million EUR for the quarter, compared to the medial Bloomberg estimate of 756 million EUR and net income was 458 million EUR, also easily exceeding the consensus of 442 million EUR. This impressive outcome was primarily driven by a post and parcel unit where operating profit was 177 million EUR (est. 155 million EUR). As a result, the company lifted its lower end of target range for 2019 earnings by 100 million EUR and now it sees EBIT between 4 billion EUR and 4.3 billion EUR. 

Looking elsewhere, Beiersdorf (BEI.DE) shares are also up after the company’s earnings met expectations and it maintained 2019 sales growth. As a result, the company’s 2019 EBIT margin forecasts still look achievable, according to a RBC analyst. 

Deutsche Post shares are leading the gains after the strong Q2 earnings. Source: Bloomberg