DE30: European stocks deepen their fall as new week kicks start

Summary:

• Equity markets in Europe begin the new week with widespread declines
• A political reshuffle in the ruling coalition in Germany after Social Democrats leader stepped down
• Infineon shares (IFX.DE) are down more than 4% after the company agreed to buy a US company for $10 billion

After falls in the US on Friday and in Asia at the beginning of this week, investors in Europe are also selling their shares as evidenced by widespread declines. Major indices are down roughly 1% after more than 30 minutes of trading. From a technical point of view, the German DE30 does not look well and after the heavy decline seen during the last session in the past week sellers seem to be mobilized to keep pushing. Before we move to charts let us write a few words about German politics. Namely, we were offered a report over the weekend that Social Democrats leader - Andrea Nahles - would step down. Nahles said that she lost the support of her party. Notice that her resignation came several days after a political setback of the SD in the European elections in which the SD got less than 16% of the votes, a clear decline from above 27% of the votes received in 2014. It is worth noting that Andrea Nahles was a key person in forming the so-called grand coalition government in Germany, hence her departure could bring this coalition closer to lose majority. The SD is expected to announce its new interim leader shortly to avoid chaos. On Sunday, German finance minister Olaf Scholz ruled himself out as a possible candidate to replace Nahles.

A technical view does not bode well for bulls at all despite the initial move to the upside in early trading today (after the open with a bearish gap). From this point of view all comes down to the broken trend line (blue). Note that after breaking below this line the price sped up its decline. Nevertheless, one may count on a short-lived pullback toward 11850 points after the price has managed to stay above 11640 points, the level being supported by the 50% retracement of the huge bullish swing. However, even if such a move to the upside occurs, it could constitute a selling opportunity once sentiment does not improve. Source: xStation5

Looking into the DE30 one may notice that Infineon shares (IFX.DE) are falling hard this morning being down more than 5% at the time of preparing this analysis. This gloomy performance has come after the company informed that it agreed to acquire Cypress Semiconductor, a US-based company taking up production of memory chips, for $10 billion in a cash offer. Infineon will pay for one share of Cypress Semiconductor $23.85, it means a 46% premium to the average price seen over the past 30 days. The US company has recently told investors that it expects an increase of its automotive business between 8% and 12% over the next five years. Do note that Cypress’s revenue was boosted by an acquisition and, as a result,  more than doubled in the past five years to $2.5 billion in 2018. However, analysts covering the company expect a positive effect on sales will disappear this year, hence the median estimate suggests an 11% decline in sales in 2019.

Infineon is down more than 5% after the company agreed to acquire Cypress Semiconductor. Source: Bloomberg