DE30: Green opening in Europe, Italy in focus again

Summary:

• European stock markets rise at the opening following a surge in China

• Italian bond market catches a breather benefiting from the ‘stable’ outlook assigned by Moody’s

• BASF (BAS.DE) to build a new battery materials plant in Finland

European equity markets are seeing a green opening of the new week benefiting from surges in China as well as the ambiguous Moody’s credit assessment on Italy. Shortly after the start of trading the German DAX (DE30 on xStation5) is going up approximately 0.9% and this exuberance is shared elsewhere as well. The most impressive gains are seen in south Europe as stocks in Spain and Italy are up by 1.2% and 1.8% respectively. The reason is simple - the Friday’s Moody’s decision regarding the Italy’s credit rating. Although the rating agency downgraded the country to Baa3 from Baa2 (it’s just one notch above a junk level), it revised the outlook to stable sending a clear message that Italy is unlikely to be cut further. As a consequence, a risk premium is falling this morning with the Italy’s 10Y yield declining almost 20 basis points. These moves benefit the shared currency being 35 pips up on a daily basis at the time of writing of this article. Nevertheless budget-related issues seem to far away to be sorted out. Firstly, Italy is aware that the European Commission will probably ask Italy to submit a revised budget draft on Tuesday (it’s the first time ever a member state is asked to do so). At the same time, Deputy Prime Minister Luigi Di Maio does not seem to back down on his 2.4% deficit target. According to La Repubblica, Italy will send a letter to the EU on Monday to clarify reasons for the 2.4% deficit. In turn, Corriere della Sera reports that while Italy seeks a dialogue with the European Union, it refuses to change the budget plan.

From a technical point of view the German DE30 appears to be rebounding from the support at 11400 points. Assuming that the Italian thread has been settled down at least for a while one may expect the index to rise toward its first important obstacle nearby 11900 points. Source: xStation5

Summing up the Asian session one may notice that the Shanghai Composite closed 4.1% higher today due to personal income tax cut plans. Stocks in Hong Kong (CHNComp) are set for a gain exceeding 2% as well. Looking through European stock markets we may spot that Italy is unambiguously leading the gains climbing 1.6% as of 8:30 am BST. Investors in Germany and France are cheering too with their indices gaining 0.75% and 0.55% respectively. The EuroStoxx50 (EU50) is going up 0.65% while the British FTSE100 (UK100) is growing 0.3%.

26 out of 30 stocks listed on the German DE30 are up in the morning with modest losses seen in these stocks that are trading below the flat line. Source: Bloomberg

BASF (BAS.DE) informed that it would build a battery materials plant in Finland enabling the supply of about 300k electric vehicle a year. The plans is to be opened in late 2020. On top of that the company also said that it signed a long-term market-based supply agreement for nickel and cobalt from Norilsk Nickel’s metal refinery. Note that the BASFs new plant will be located next to the Norilsk Nickel’s refinery.

SAP (SAP.DE) has been upgraded to buy from neutral by UBS. Note that the SAP’s earnings and sales reported on October 18 topped estimates. In the newly revealed guidance the company raised its 2018 fiscal year revenue expectation to 25.2-25.5 billion EUR from 24.98-25.3 billion EUR.