DE30: European stocks surge in response to Trump remarks

Summary:

• European indices move up this morning benefiting from upbeat developments regarding a US-China trade dispute

• DAX (DE30) with a chance to draw a bullish engulfing at a weekly time frame

• Wirecard (WDI.DE) underperforms as BofA downgrades the stock

European equity markets have entered a new month in rosy moods after the gloomy performance in October. Even as we have moved nowhere in real progress between the US and China, investors seem to buy Trump’s remarks that a deal could be attainable at the end of this month when both Trump and Xi are expected to discuss. As a result we see massive and widespread gains across European stock markets while bonds are being sold off at the same time. Less concerns regarding the ongoing trade war mean the weaker US dollar (no flight to safe haven assets) and as a result the stronger Chinese yuan. Meanwhile, European investors should not forget about two important topics. First and foremost, the European manufacturing sector continues slowing as evidenced by the most recent PMI releases. Note that Italy’s PMI declined to 49.2 in October reaching its lowest point in almost four years - technically the Italy's manufacturing sector entered contraction last month. Secondly, an Italian budget thread is still alive. The newest remarks expressed by Italian Prime Minister Giuseppe Conte suggest that the country is not going to back down as he reiterated “Italy’s target spending is non-negotiable”. On top of that the Brexit issue remains unresolved offering also a dose of uncertainty.

After dipping around 11400 points the German DE30 has surged and this move continues this morning. If such robust momentum stays in place one may count on a big reversal. Namely the price could close above the last week’s open level producing a clear bullish engulfing. However, even as we got such the candlestick room for gains could be capped to 11900 points where the huge resistance might be localized. Source: xStation5

Summing up the Asian session let’s note that the Hang Seng (CHNComp) turned out to be the best performing index there gaining almost 4%. The Shanghai Composite gained 2.7% while the Japanese NIKKEI (JAP225) picked up 2.6%. In Europe widespread gains are seen as well. The DE30 is climbing 1.2%, the French CAC40 (FRA40) is adding 1.2%, the EuroStoxx50 (EU50) is rising 1% while the British FTSE100 (UK100) is rising 0.6%. Notice that Wall Street is expected to start Friday’s trading higher too as the SP500 futures are trading up 0.8% in early European trading.

A majority of stocks are on the rise while Wirecard is clearly underperforming. Source: Bloomberg

The breakdown of the German DE30 indicates that Wirecard is by far the weakest stock right now falling more than 3%. This underperformance stems from the fact that the stock was downgraded by Bank of America ML to underperform with a revised price target of 150 EUR, down from 190 EUR. In turn, Deutsche Bank (DBK.DE) is rising over 2% following the news that a former top executive at JP Morgan, who currently leads Hudson Executive Capital (hedge fund), has decided to bet on the German lender buying a 3.1% stake (roughly 570 million EUR). In a statement the hedge fund wrote “A repaired balance sheet, ample liquidity, strong home market fundamentals and the first profitable year in four years expected in 2018 provide the first solid basis from which to build since the financial crisis.”