DE30: German industrial output sinks, DB to cut dozens of jobs

Summary:

• German industrial production sinks in July pointing to a technical recession in Q2
• DAX breaks through the important resistance
• Deutsche Bank to cut up to 18k jobs in its all businesses

In spite of the fact that Asian investors witnessed some gains on their last trading day this week, in Europe optimism is much less buoyant as major indices have kicked off the day rather on the wrong foot. It seems that positive sentiment, that came after the news regarding a phone call held between US and Chinese officials, across the old continent is slowly disappearing. Having in mind that the ECB meets next Thursday one may expect some hectic moves until that day given the fact that market observers are divided when it comes to what the ECB will do. Although the consensus points to both a deposit rate reduction and a launch of quantitative easing, a number of opponents (mainly from France, Germany and Austria) of aggressive action casts a shadow on the near-term monetary policy outlook. On the other hand, the technical backdrop for the German index does not look so bad as the price managed to break through its pivotal resistance in the form of the 100DMA.

As one may notice, the DE30 broke through a cluster of resistances (100DMA, 23.6% retracement). Thus, investors might be quite optimistic looking forward. Moreover, one cannot rule out a scenario that buyers step in more aggressively in the run-up to the ECB meeting and thereby, for example, pushing the DE30 toward the July’s highs. Source: xStation5

In terms of macroeconomic readings from Europe today it is worth focusing on German industrial output for July that dropped by 0.6% in monthly terms or 4.2% in annual terms, well below expectations. Moreover, looking at this data even through a magnifying glass one cannot discern any positives. That means that a technical recession scenario in the Europe’s largest economy has become more likely. Soft domestic demand and adverse effects of the US-China trade war (German carmakers are particularly exposed to this threat) do not bode well for the rest of the year. Moreover, there is another factor that could make things even worse - a water level in Rhine which has begun falling recently. As for today, a water level in Kaub, a key point for manufacturing, stands at 1.45 meter, down roughly a full meter compared to the level seen two weeks ago. Let us remind that a level of 0.5 meter or below could be enough to force the German authorities to close any movement in the river. 

Looking at the DAX breakdown one may notice that Deutsche Bank is among the worst performing stocks this morning. The German lender informed that it planned to cut dozens of jobs (salespeople and traders of global fixed-income ranks are among them). The reductions are largely tied to the underperformance of some DB’s divisions. Under the ongoing restructuring the German bank plans to lay off up to 18k employees as CEO Sewing attempts to turn around years of poor profitability.

Roughly a half of stocks listed in the DAX are moving down on Friday. Source: Bloomberg