DE30: German shares take a hit shortly after opening

Summary:

• Gains across European stock markets quickly fade way following weak trading in Asia
• German DAX (DE30) takes a hit shortly after the opening continuing to head lower
• Deutsche Bank (DBK.DE) moves lower as ECB is going to look at some banks’ trading activity

Taking into account that a rate increase in the US has been already fully priced in, investors’ attention turns to a never-ending trade spat between the US and other economies, this time all eyes on China. While Donald Trump hailed a meeting with North Korean leader Kim Jong Un in Singapore he quickly cut speculations regarding sanctions on the country - they are to stay in place. Meanwhile, the Trump’s administration is expected to slap tariffs on some Chinese imported goods it has announced recently. Before additional costs are implemented, the US has to finalise a list of products being embraced of these levies. This topic seems to be at the centre of investors’ attention right now, and on that account equities all around the world could languish. Let’s look at the DE30 chart illustrating the price plunged shortly after the open.

The German stock market plummeted shortly after the cash opening. Source: xStation5

Technically speaking buyers may be looking at the chart presented above with a dose of caution as the price made a big leg lower after the cash opening. As a result, we have moved through a local support/resistance opening the way for further declines over the near term. This landscape seems to suit to risks related to trade tensions between the US and China, which may be prevalent at least till Friday. Moreover, equities might be under pressure should the European Central Bank come with a more hawkish statement announcing an end of its asset purchase programme (the programme should last till the end of 2018 barring reinvestments of proceeds). Thus, the DE30 could head lower toward 12735 points followed by a strong demand area placed in the vicinity of 12550 points.

Deutsche Bank is among the biggest laggards in early trading on Wednesday. Source: Bloomberg

The Asian session brought fairly widespread losses except for the Japanese NIKKEI (JAP225) being able to add 0.4%, mainly due to JPY weakness. Apart from the Japan’s stock market, the Hang Seng (CHNComp) lost 1.5%, the Shanghai Composite moved down 1% while the Australian S&P/ASX200 (AUS200) closed 0.5% lower. In turn, as far as specific stocks being listed within the DE30 are concerned, it’s worth paying particular attention to Deutsche Bank being among worst performers in the morning. It has come following the Sueddeutsche Zeitung report that the ECB is going to look at the German lender’s trading activity (plus some other banks like Societe Generale and BNP Paribas). Regulators are looking at how the banks are valuing loans, stocks and derivatives on the balance sheets, and whether risk is appropriately accounted for. The three banks have been chosen as they are the largest lenders in the area under ECB’s regulations, and by focusing on them the ECB is aiming to establish uniform standards. So far neither the ECB nor the banks have released official statements.

DB’s shares have already tested their short-term trend line, but there are risks the line could be broken as buyers have failed to move through 9.8 EUR as of yet. Source: xStation5