DE30: German carmakers lag on stimulus disappointment

• Stocks await ECB move

• DE30 halted rally at 78.6% retracement of February-March sell-off

• German carmakers lag as stimulus deal fails to include support for conventional vehicle purchases

Stocks in Europe are trading slightly below yesterday's closing price following two days of strong gains. It looks like the market is waiting for the ECB monetary policy decision (12:45 pm BST). The Bank is expected to boost the size of its PEPP programme significantly. Apart from that, Germany agreed on a second stimulus package and decided on a surprise value-added tax cut.

Germany approves second stimulus package

German governing coalition reached an agreement on a second stimulus package. Chancellor Angela Merkel said the stimulus amounts to €130 billion. The main goal of the package is to support short-term consumer spending and encourage businesses to invest. Key takeaways from the package:

• Bridge financing for small and medium companies

• One-off payment of €300 per child

• €5.9 billion in aid to municipalities

• Tax incentives for corporate investments

• Value-added tax cut from 19 to 16%

• Increased incentives for EV purchases

Including most of these measures was not a surprise as media reports hinted on them being discussed. However, a value-added tax cut came as a surprise.

Source: xStation5

DE30 extended gains yesterday and tested 12,560 pts handle yesterday. Note that this level marks 78.6% retracement of February-March sell-off. The index was unable to break above and started to pullback. DE30 gained around 23% over the past 3 weeks and given such a steep increase, risk of correction is quite high. ECB is the main event of the day and it is expected that the Bank will boost the size of its PEPP programme. However, in case it fails to do so, ongoing pullback may deepen. In such a scenario, the first support to watch can be found at 12,200 pts. Major support marked by the lower limit of the Overbalance structure (yellow box) is around 1,000 pts below current market price. On the other hand, the aforementioned increase to PEPP programme is already priced-in therefore confirmation from the ECB is unlikely to trigger a big reaction on the market.

DAX members at 9:54 am BST

German carmakers like Daimler (DAI.DE), Volkswagen (VOW3.DE) or BMW (BMW.DE) can be found among today's DAX laggards. Automotive sector is taking a hit as German stimulus package failed to include direct government support for purchases of conventional vehicles. It was rumoured for some time that such a measure would be included to aid the struggling automotive sector. In other news, it was reported that German car registration dropped 49.5% YoY in May.

Adidas (ADS.DE) said that revenue growth in Greater China has turned positive in May as demand recovered quicker than expected. The company noted strong e-commerce growth in China as one of the reasons. Overally, two-thirds of global Adidas stores are opened, either fully or partially. The company does not expect significant deviations from Q2 forecasts approved on April 27.

Tesla (TSLA.DE) has been criticized in Germany for the environmental damage its new factory is expected to cause. The company decided to respond to criticism and said that it will rework plans for its factory so it can be more friendly to the environment. New blueprints are expected to be presented this week or the next. Carmaker expects its German plant to start producing cars within a year.

According to a Reuters report, Airbus (AIR.DE) plans to keep output 40% below pre-pandemic levels for the next two years. Such a move could mean that the European aircraft manufacturer may lay-off as much as 20 thousand workers.

Daimler (DAI.DE) dropped at the launch of today's trading as the second German stimulus package turned out to be a slight disappointment for the automotive sector. However, shares found support at 50-hour moving average (green line) and began to recover later on. The €38 handle is a near-term resistance to watch. Source: xStation5