DE30 gains as German government readies more stimulus

• German government discusses another stimulus package

• DE30 jumps above 12,200 pts

• Lufthansa (LHA.DE) started restructuring process

Stocks in Europe extend gains on Wednesday. Markets are being supported by reports that German government is readying another stimulus package. Revisions to European services PMIs for May did not show major deviations. However, Spain and Italy reported services PMIs for May for the first time. Spanish gauge jumped from 7.1 to 27.9 pts (exp. 25 pts) while Italian index jumped from 10.8 to 28.9 pts (exp. 26.1 pts).

German government coalition is in talks over the second stimulus package

Members of the German coalition are discussing the second stimulus package. However, no compromise was reached on the number of issues yesterday and talks are likely to resume today after the cabinet meeting. Unofficial reports claim that the proposal is 60 pages long and covers over €100 billion in various help. Among contentious issues are cash bonuses aimed at stimulating car sales or debt relief schemes for municipalities. Among other proposals one can find €25 billion in loans to small and mid-sized companies as well as a family bonus of €300 per child.

Source: xStation5

DE30 finished yesterday's trading at the 200-session moving average (purple line) raising some concerns among bears. However, the index continued to rally during the Asian session and is now trading above 12,200 pts mark! DE30 is currently trading around 13% below all-time high reached in February 2020. Looking ahead, the important resistance zone ranges between 12,450 pts and 78.6% retracement of February-March sell-off. Lower limit of the Overbalance structure that serves as a final support can be found at around 11,000 pts but given strong upward momentum on the stock markets, such a big drop would need a clear catalyst. Short-term support can be found at the aforementioned moving average that runs at more or less 12,080 pts. ADP (1:15 pm BST) and non-manufacturing ISM (3:00 pm BST) are among releases scheduled for today that could move the markets.

DAX members at 9:44 am BST. Source: Bloomberg

Lufthansa (LHA.DE) released full earnings Q1 2020 earnings report. German carrier reported an Ebit loss of €1.22 billion. Revenue dropped 18% YoY to €6.44 billion. Net loss in the quarter stood at €2.12 billion. The company considers selling some non-core assets in medium term. Lufthansa is also in talks with aircraft manufacturers to delay deliveries. Results were more or less in-line with preliminary figures released by the company on April 23. Company also announced it will start a restructuring process in order to cut costs and ensure it can repay a state bailout.

BASF (BAS.DE) enjoys strong gains today. The company received upgrades at Jefferies and Pareto Securities. Jefferies raised stock to "buy" and set a price target of €66. Pareto also upgraded stock to "buy" and set a price target of €65. Jefferies said that BASF valuation currently offers the "best window" to buy since 2016 as they expect the company to benefit from potential post-Covid rebound in cyclicals.

Moody's announced rating decision on Daimler (DAI.DE). German carmaker had its rating reaffirmed at A3. However, the outlook was changed to "negative" from "watch negative".

Citi initiated coverage of RWE (RWE.DE). Bank started with a "buy" recommendation and €34 price target. Citi said that the current valuation of RWE does not reflect a strong shift to renewables and that it offers some upside into the future.

Share price of Daimler (DAI.DE) does not seem to be too concerned by outlook downgrade at Moody's. Stock is trading higher today along with the broad market. Shares are currently testing resistance €37 - level marked by short-term consolidation from the beginning of March 2020. Source: xStation5