DE30: Greek privatization is gathering pace

Summary:

• The Greek privatization process goes way slower then European Commission expected but gathers pace

• DAX (DE30 on xStation5) surges to trade within the resistance zone once again

• Despite EU approval Linde-Praxair deal remains endangered

Equities traded mixed during the Asian session following an intraday ATH reached by S&P 500 (US500) yesterday. In Australia S&P/ASX 200 (AUS200) closed 0.29% lower while in Japan Nikkei (JAP225) added 0.58%. Chinese indices are generally trading lower but Hang Seng (CHNComp) is moving 1.1% higher.

European session opening can be named downbeat as majority of the blue chips indices launch today’s trading with a moderate downward price gaps. The Russian benchmarks, MOEX and RTSI,  were the only major ones to show little gains in the first minutes of trade. On the other hand, Swiss and UK companies were taking the biggest step back. All 19 sector subindices from the Euro Stoxx 600 index opened lower on Wednesday. Miners and refiners were subject to the biggest downward pressure while healthcare and real estate stocks were underperforming just minorly.

The amount of money raised by the Greek privatization process since 2011. Note that the values represent only concluded sales (do not include sales not concluded but bound by contracts). Source: Bloomberg

On Monday we wrote about Greece as its bailout programme came to an end. As no more funds will be injected into the Greek economy the country needs to pay double attention not to repeat its mistakes. The European authorities urge Greek counterparts to go along with the privatization process. The government of the Mediterranean country is eager to do so but the goal of reaching the €50 billion in privatization sales still remains a distant one. In 2011 European Commission said it expects Greece to raise that amount up to 2015. However, in the 2011-2018 period the value of total Greek privatization sales (both conducted and bound by contracts) amounted to just €12.5 billion, according to the Greek Finance Ministry data. Having said that, one can see that in case the Greek authorities do not accelerate the process investors may become sceptical about them living up to their commitments of getting economy back on track. What one may find pleasing is that the process, in fact, accelerated in the past two years but the pace is still too slow to conclude it in a reasonable period of time.

Major European stock indices after the first hour of trade:

• DAX (DE30): +0.25%

• FTSE 100 (UK100): -0.32%

• CAC40 (FRA40): +0.27%

• IBEX 35 (SPA35): -0.08%

• FTSE MIB (ITA40): +0.17%

DE30 retests the resistance zone ranging 12380-12425 pts. Source: xStation5

Taking a look at the DE30 (DAX futures underlying) price action in the past few months one can see that the 12380-12425 pts area (marked by red rectangle on the chart above) saw price reversing a couple of times. This time it was no different. The German benchmark rushed towards the upper bound of the resistance zone yesterday but failed to break above. In turn we saw a minor pullback to the lower limit of the zone where DE30 finished yesterday’s session. After opening a notch below the 33-period moving average on the H4 interval today (green line on the chart) index once again surged to trade within the aforementioned resistance zone at press time. In case bulls will have enough power to overcome this technical hurdle the 12500 pts handle (purple dotted line on the chart above) may be a level to watch as it served as a neckline of the recent head and shoulders formation.

Linde (LIN.DE) underperforms as merger with Praxair is put under question. Source: Bloomberg

Company News

Linde (LIN.DE) is  the worst performing DAX stock on Wednesday morning. At the beginning of the week we wrote about its merger with Praxair (PX.US). Two companies secured conditional approval from the European authorities but obstacles araised on the way to obtaining the US approval. Namely, when the companies were initially negotiating the deal they agreed that in case the obtaining of the antitrust approval would mean a need to dispose businesses generating over $4.3 billion revenue or $1.1 billion EBITDA each firm could withdraw from the deal without suffering any penalties. Linde informed today that the revenue threshold will most likely be exceeded after the US Federal Trade Commision ordered more assets to be sold than expected. However, according to the Linde statement, both companies are in constructive talks with each other as well as with the regulators to find a way the deal can be reach efficiently. After the first hour of trade Linde shares have moved around 1.5% lower.