DE30: German equities add to previous gains

Summary:

• France is preparing contingency measures for no-deal Brexit

• DAX (DE30 on xStation5) flirts with the 12600 pts handle

• Mixed analyst outlook on the German utilities

New all-time-highs were reached on Wall Street yesterday. The S&P 500 finished a notch below the 2900 pts and may be set to break above this psychological barrier this week. The optimism was spoiled a bit during the Asian trading as most of the Chinese equity indices underperformed slightly. Elsewhere, the Japanese Nikkei (JAP225) added 0.1% and the Australian S&P/ASX 200 (AUS200) moved 0.57% higher.

After significant gains were made on the European stock exchanges yesterday the upbeat moods were also seen during Tuesday’s opening. A vast majority of the blue chips indices from the Old Continent launched today’s trading higher with some weakness being spotted on the Russian market. Apart from that, the Italian and Spanish equities are lagging behind other Western European peers. Miners and carmakers lead gains in Europe in the first minutes of trade while telecoms and refiners are the biggest underperformers.

DE30 smashed through the 12500 pts handle in yesterday’s afternoon trading after it failed to do so in the morning. The benchmark rushed towards the resistance level at 12600 pts on Tuesday morning but failed to hold this gains. In turn the index returned to the 12550 pts area and a pullback towards the aforementioned 12500 pts cannot be ruled out. Source: xStation5

Outlook for the Britain's departure from the European Union varies significantly across the Old Continent. On Sunday Irish Foreign Minister Simon Coveney claimed that the no-deal Brexit is “very, very unlikely”. However, the French President Emmanuel Macron expressed yesterday that the unity of the Union is far more important than forging any kind of deal with the departing UK. Such uncertainties are taking their toll on the domestic business as the latest CBI services sector survey saw index plunging to the lowest level since November 2016 with Brexit being recalled as one of the key risk factors. Despite the words from the Irish Foreign Minister the no-deal Brexit may actually be very, very likely as time is running short. The French authorities seem to partly agree with it as the country’s Prime Minister Edouard Philippe ordered his ministers to prepare contingency measures aimed to ease any kind of difficulties that may result from the UK departure from EU without any kind of deal signed. The PM Philippe office said that it hopes necessary agreements will be signed but France needs to be prepared to tackle any surfacing difficulties.

Major European stock indices after the first hour of trade:

• DAX (DE30): +0.16%

• FTSE 100 (UK100): +0.70%

• CAC 40 (FRA40): +0.09%

• IBEX 35 (SPA35): -0.33%

• FTSE MIB (ITA40): -0.38%

EON (EOAN.DE) is DAX top laggard on Tuesday morning while companies from the automobile industry lead gains. Source: Bloomberg

Company News

The German utility stocks are drawing attention today. RWE (RWE.DE) is one of the DAX leaders while EON (EOAN.DE) is one of the top laggards. An analyst action can be named a reason behind such development. Namely, Jefferies Group, an American investment banking company, upgraded RWE to “buy” from “hold” and raised its price target to €29 from €21.90 citing forecasted 30% growth in the renewable energy unit capacity. On the other hand, EON was downgraded to “hold” from “buy” and had its price target revised lower from €11 to €10.20. Jefferies named new regulatory risks in Sweden as well as the pressures in retail segment as main risk factors for the company.

Taking a look at the quotation board of the DAX stocks one can see that companies linked to the automobile industry are doing really well today. This can be an aftermath of the trade deal reached between US and Mexico. As we wrote in our morning analysis both countries decided to lift required ratio of car parts produced in US and Mexico that are used in the production process. Such a development could boost automobile industry stocks not only in the North America but also in other parts of the world. Recall that some of the German car makers have factories in that region.

RWE (RWE.DE) bounced from the €20.60 area and is testing the resistance zone ranging €21.70-22.20 at press time. A break above this technical hurdle would pave the way towards this year’s highs around €22.60. Source: xStation5