DE30: European stocks decline on rising trade fears

Summary:

• European equity markets begin the new week with substantial declines following a tweet from Donald Trump
• DAX (DE30) breaks below its short-term trend line
• BASF shares (BAS.DE) plunge 7%, shares of German carmakers also among the worst performers

The start to the new trading week across European equity markets has not been successful to say the least. Most of stock markets in Europe have started today’s trading well below the closing levels seen on Friday and the prime reason is a Trump’s tweet pointing to a further escalation of a US-China trade war. Naturally, Chinese stocks have been hit the most, however, possibly increased tariffs are also daunting investors in Europe with German carmakers registering sizeable losses this morning (let us remind that Donald Trump was repeatedly talking about tariffs on European cars being imported to the US). The downbeat news from the US has cast a shadow on trade negotiations between the US and China scheduled for this week. Recent revelations suggest that a Chinese delegation will head to the US despite the Trump’s threat concerning higher tariffs, albeit it’s uncertain if Vice Premier Liu He joins the delegations as well. Although it’s a positive information that Beijing still intends to go to the US to try to hammer out a trade deal, investors remain skeptical and it’s reflected by heavy losses in Europe. Before we start analyzing specific stocks, let's take a look at the chart below.

After a solid gain seen on Friday, the DE30 has more than erased this result. Technically the price has come back to the upward channel. From this point of view bulls may focus on a demand zone in the vicinity of 12120 points. Once this level is broken, then one may expect a deeper pullback even toward the lower end of the above-mentioned channel. This level is also underpinned by the 50DMA. Source: xStation5

After more than an hour of Monday’s trading we may notice that the German DE30 is falling 1.7%, the French CAC40 (FRA40) is losing 2%, the EuroStoxx50 (EU50) is going down 1.9%, the Italian FTSE MIB (ITA40) is sliding almost 2% while the Spanish IBEX (SPA35) is moving down 1.5%. A remainder: the UK is off today. In terms of Spain and Italy one cannot miss out services PMIs for April as they came far below expectations. The index for Spain fell to 53.1 from 56.8 (exp. 55.1), in turn the index for Italy declined to 50.4 from 53.1 (exp. 51.8). Although these results are not surprising (such gloomy outcomes could have been expected as the index for the Eurozone’s services sector dipped), it signals that a convergence between services and manufacturing is arising from the services sector instead of the manufacturing sector.

BASF and German carmakers are among the most affected stocks this morning. Source: Bloomberg

BASF’s shares are down roughly 7% after the company informed that its profit growth would be at the low end of its forecast citing, among others, global trade tensions. Therefore, having a further trade war escalation one should not be particularly surprised seeing the stock moving down heavily. On top of that, German carmakers are also among the worst performing stocks as investors reminded themselves about a threat (duties on cars imported to the US) Trump had made earlier this year toward the European car industry. Thyssenkrupp (TKA.DE) shares are also down markedly despite a report released yesterday that the firm sees room for reaching an agreement with the EC on a planned joint venture with Tata Steel.