DE30: European stocks open lower after bleak session in the US

Summary

• Equity markets in Europe start the day well below their Monday’s close

• DAX (DE30) breaks below key technical level

• Wirecard (WDI.DE) falls again in the aftermath of the 2019 earnings guidance

Stocks in Europe have fallen at the opening as investors are digesting heavy falls on Wall Street. A further deterioration in moods is also being reflected in the declining euro as well as in the Italy/Germany 10Y spread surging this morning. Since the start of the day it has gone up almost 20 basis points crossing again 330 basis points. As we have repeatedly suggested the rising risk premium in Europe is weighing on the common currency - this relationship is perfectly seen this morning. Let us recall that the European Commission is expected to express its opinion with regard to a 2019 Italian budget draft (with minor changes compared to the initial version), this is a reason why investors could be yet more unwilling to put more money into the Italian debt market. Looking at the daily chart of the DE30 bulls cannot feel comfortably.

The DE30 is extending its decline and it’s just a step ahead of its new lows. Source: xStation5

From this point of view several aspects need to be highlighted. First of all, the morning has brought an acceleration of falls in response to the gloomy session in the US. As a result, the German index has moved below its downward limit of the descending channel and it’s only a tiny step before making the new lows. If this move continues unfolding it could take the price down at least toward 10800 points, the highs from the November 2016 before a sharp rally began in December that year. Based on the price behaviour from recent weeks one may assume that any spikes in the DE30 could fade quite quickly as more sellers step in the market.

Only seven stocks listed in the DE30 are above their flat line this morning. Source: Bloomberg

Looking into the German index one may identify Wirecard (WDI.DE) as the worst performing stock. Its underperformance reflects the 2019 earnings guidance that, in the eyes of analysts, implies muted upgrades. The same view is shared by Morgan Stanley but it also adds that the current share price is attractive given valuation of 32x forward P/E. In turn, HSBC analysts straightforwardly recommend going long with a price target at 240 EUR per share (128 EUR spot price) suggesting that the recent decline is without fundamental reasons, while valuation in undemanding.

BASF (BAS.DE) is another stock falling heavily this morning after the company’s CEO unveiled a comprehensive redesign of its corporate structure aimed at boosting profit by $2 billion. Investors do not seem to have bought this idea and the stock is giving back more than 2%.