DE30: European stocks fall on trade war risks, Lufthansa pummelled by double downgrade

Summary:

• Stocks across Europe begin Friday’s trading broadly lower on the back of an escalation of trade wars

• Donald Trump threatens again to withdraw from the World Trade Organization

• DAX (DE30 on xStation5) extends its losses

• Lufthansa (LHA.DE) falls over 4% following double downgrade

European equities have kicked off Friday’s trading with widespread declines as investors are digesting a further escalation of the trade war between the US and China as well as a threat that the former could leave the World Trade Organization (WTO). After 30 minutes of trading the German DAX (DE30) is falling almost 0.9% being the worst performing major index in Europe. Although moods across the equity spectrum has clearly deteriorated, EM currencies are continuing to licking their wounds after heavy declines registered on Thursday. Let us remind that these drops were exaggerated by the crash of the Argentine peso which prompted the country’s central bank to lift the 7-day repo rate by as much as 1500 basis points to 60%! This was really the amazing move in the world when central banks are wondering whether they should increase borrowing costs by… 25 or less basis points. Anyway, along with Trump’s remarks regarding a EU proposal to scrap all tariffs on cars we were also offered another threat from him that the US could withdraw from the WTO if the organization does not shape up. In a Thursday’s interview with Bloomberg Donald Trump again criticized the international trading group’s treatment of the United States. Commerce Secretary Wilbur Ross followed Trump’s thoughts saying that “we’ve made no secret of our view that there are some reforms needed at the WTO”.

The DE30 keeps falling after failing to retain above 12500 points. Source: xStation5

Technically the German index does not look well and this is especially true when we take into account the nearing week and month end. From the weekly time frame point of view we are set to be offered a shooting star drawn in the neighbourhood of a key technical level of 12500 points. Therefore, one may conclude that odds to see further falls over the next couple of days or even weeks have increased. As such, one may expect the index to march toward 12100 points or so unless bulls break above 12500 points till the end of today’s session - this is the very unlikely scenario given moods surrounding global equities though.

Lufthansa (LHA.DE) is being battered after an extremely bearish call coming from Citi. Source: Bloomberg

The quick look across European markets allowing us to think that Wall Street is likely to open lower as well. SP500 futures are trading almost 0.2% down at the time of writing, however, given the fact that US indices have been recently resilient to overall risk-off one may suppose that they may end the day higher anyway. When it comes to specific stocks being listed in the DE30 one may single out Lufthansa (LHA.DE) which is falling as much as 4% following the particularly weak recommendation from Citi. The bank downgraded the air carrier to sell from buy and cut the price target substantially to 19.9 EUR from 32.5 EUR. The bank pointed out that the German company’s profits might be squeezed by Middle-Eastern airlines and low cost carriers. It sees Ryanair, Easyjet and Wizz all increasing capacity in Germany which may “stimulate” medium-term pricing weakness. It concluded its report suggesting that Lufthansa has “distinctly lower focus” on shareholder returns.