Summary:
- Two big banks are considering Commerzbank takeover
- DAX (DE30 on xStation5) test the lower limit of the upward channel
- Trade war causes Merck (MRK.DE) to make changes in hedging policy
Stocks in Europe opened higher for another day in a row as pledge to continue talks with China seemed enough to spur risk appetite. Polish equities led higher followed by Russian peers. On the other hand, Belgian and Spanish companies launched Wednesday’s session lower. IT stocks and builders outperformed in the first minutes of the session while utilities lagged the most. Despite positive opening, a bulk of the European indices turned lower later on.
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DE30 left the range of the upward channel for a brief moment earlier this week. The index managed to climb back yesterday but with today’s drop price is once again testing the lower limit of the channel. A break lower could pave the way towards the latest local low at 11840 pts handle. This level should serve as the first support level to watch. Source: xStation5
Two big banks are considering Commerzbank takeover
Merger talks between Commerzbank (CBK.DE) and Deutsche Bank (DBK.DE) broke down earlier this month but it looks like there are more lenders interested in acquiring Commerzbank. According to the latest reports, Dutch ING and Italian UniCredit are considering taking over the German bank in order to bolster their presence in the Europe’s biggest economy. Neither ING, nor UniCredit confirmed the information. However, UniCredit has been scaling down holding of the Italian debt as of late, what could be seen as a preparation to absorb Italian bond portfolio of Commerzbank. On the other hand, ING is said to be discussing moving headquarters from Amsterdam to Frankfurt, what also could hint that the Dutch lender is interest in Commerzbank. Nevertheless, as no formal talks have been launched yet it may take a few months before we get to know who, if anyone, will acquire Commerz. It should be noted, however, that any European cross-border banking merger is likely to face significant regulatory hurdles.
DAX members on Wednesday morning (8:37 am BST). Source: Bloomberg
Company News
Merck KGaA (MRK.DE) decided to make changes to its hedging policy due to the trade war turmoil. The German pharmaceutical company decided to switch from using three year currency hedges to one year currency hedges and to expand hedging program to all currencies it does business in. Additionally, the company set a limit on the size of negative FX translations. The move should provide management with more certainty given the current situation on the markets but at the same time it should not have a big impact on future earnings.
E.ON (EOAN.DE) is the worst performing DAX member on Wednesday morning. The utility company received a downgrade at Goldman Sachs. The Bank decided to lower recommendation for E.ON from “buy” to “neutral”. Goldman Sachs reasoned its decision saying that it expects the company to accumulate bigger amount of debt during the next two years than company’s management forecasts. The Bank claims that such a development would limit ability to undertake capital projects and weighs on future outlook.
Commerzbank (CBK.DE) was trading almost 50% higher against December’s lows at the beginning of May. Nevertheless, rally was halted at the resistance zone ranging €8.00-8.20. The stock pulled back to the upward sloping trendline and bounced higher later on. However, with today’s drop it is becoming more likely that the stock will retest the aforementioned trendline in the nearby future. Source: xStation5
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