DE30: Markets start higher, German industrial output disappoints

Summary:

• European equity markets begin higher on Wednesday after a decent rebound on Wall Street
• German industrial output shrinks in June offering no relief for the beleaguered industry
• Commerzbank (CBK.DE) reports earnings that meet expectations and lifts loan provisions due to worsening economic conditions

The start to Wednesday’s trading has been quite successful with major European indices climbing roughly 0.5% after Wall Street saw a decent bounce yesterday as major indices gained more than 1%, erasing some of the losses they had borne earlier. Equity investors may also look optimistically at global central banks cutting interest rates - New Zealand, India and Thailand all of them surprised today. However, today’s rebound could turn out only short-lived having in mind the US-China trade spite is nowhere close to de-escalate while macroeconomic data keep deteriorating. Here, let us refer to the industrial output data from Germany for June released this morning. It came in at -1.5% in monthly terms, well below expectations suggesting a 0.5% MoM bounce. Moreover, expectations may have been also buoyed to some extent after the factory orders data surprised to the upside yesterday. Looking at the details one may notice that weakness was widespread as all major categories declined in June with intermediate goods experiencing a 2% MoM decrease, the largest since 2009 - not a good sign looking forward. This kind of readings should pin substantial monetary stimulus from the European Central Bank next month.

Looking at the technical landscape of the German index bulls may hope for a bounce given the fact that the price has managed to stay above the demand zone nearby 11590 points. That seems to bode well for them and if they successfully break through the 23.6% retracement, it could open the way for at least another retracement in the vicinity of 11920 points. If so, it would imply a more than 1.5% increase. Source: xStation5

As far as information from companies is concerned, one may focus on several firms. Let’s begin with with Bayer (BAY.DE) being up more than 4% at the time of writing of this commentary. This rosy performance has come after Bayer and Lanxess informed they agreed to sell a chemical-parks operator to funds managed by Macquarie Infrastructure and Real Assets. A deal was valued at 3.5 billion EUR. The agreement is a continuation of Bayer CEO Baumann’s push to unload assets outside the core health-care and crop-science units. In turn, Societe Generale analysts claim that crop science could be an important growth driver for Bayer in the long-term. 

Another stock being worth looking at is Commerzbank who reported Q2 earnings that met expectations with revenue coming in 2.13 billion EUR, net income reaching 271 million EUR and operating profit achieving 298 million EUR. Moreover, the company’s common equity Tier 1 ratio beat expectations coming in at 12.9% (est. 12.7%). It is also worth noting that the German lender decided to lift its loan provisions for non-performing loans on the back of worsening economic conditions. The provisions for these loans more than doubled to 178 million EUR. 

In turn, Wirecard is the worst performing stock in spite of the fact that the firm raised its 2019 profit outlook and now it expects EBITDA of at least 765 million EUR compared to the previous forecast of 760 million EUR. CEO Marku Braun said “We are looking extremely optimistic toward the second half of 2019.” During the second quarter the company’s revenue to 37% to 643 million EUR while EBITDA rose to 184 million EUR, both numbers came in above expectations.

A positive start to Wednesday’s trading after several days of deep losses. Source: Bloomberg