DE30: Red opening across Europe, Bayer down 10% on Monsanto’s troubles

Summary:

• European equities start the week lower on the back of the TRY’s plunge-fuelled concerns

• DAX (DE30) eyes its nearest support nearby 12100 points

• Bayer (BAYN.DE) declines over 10% as Monsanto loses a verdict in Roundup cancer trial

European indices have not begun the new week on the right foot as concerns regarding a possible spillover of Turkish difficulties are weighing on some particular stocks. Let us recall that the European financial watchdog on Friday singled out some European lenders as being particularly vulnerable to the currency crisis in Turkey (those having the largest relative exposure there). On top of that, overall deteriorated sentiment to EM assets is not also helping riskier assets as investors prefer to allocate their capital into bonds and low-beta currencies (the JPY in particular). As a result, the US10Y yield has lost approximately 7 basis points since the opening on Friday, the similar loss has been noticed in terms of the German 10Y yield. The Japanese currency has been higher over such the horizon as well, the move coinciding with the lately reported Japanese quicker GDP growth as well as a slightly less dovish approach of the Bank of Japan.

The German DE30 appears to be en route to its nearest more notable support placed in the vicinity of 12100 points. Source: xStation5

Before we move to analyzing particular stocks being listed in the German stocks market let’s take a look at the entire index. The Friday’s session brought a heavy decline as investors wanted to close their positions before the weekend due to uncertainties pertaining to the Turkish thread. The beginning of the new week has not also looked well so far as the DE30 has slumped along with its European peers. As of 8:50 am BST the German index is dropping 0.7% being the third weakest major indice behind the Spanish IBEX (SPA35) and the Italian FTSE MIB (ITA40). Technically the German index seems to be in a position to continue falling at least toward 12100 points where the nearest demand zone might be localized. Therefore, it is highly likely that bears would want to take the price there before any resurrection occurs.

Bayer (BAYN.DE) is suffering substantially this morning being by far the heaviest drag on the entire index. Source: Bloomberg

What has caused such a mighty decline of Bayer's shares? The tremendous sell-off seen this morning stems from the fact that Monsanto, the US agrochemical company being acquired by Bayer earlier this year, was hit with a significant punishment in the first trial over claims that the Roundup weed killer causes cancer. The San Francisco based Superior Court ordered that Monsanto has to pay as much as $289.2 million as it found that the company’s flagship product Roundup presented a “substantial danger” to consumers, and that Monsanto knew and should have known of potential risks and failed to warn consumers. Monsanto said it will appeal. Notice that it was one of many charges against the US-based (now part of Bayer) over the famous herbicide. Hence, one needs to take into consideration that the company could be hit with subsequent heavy costs that in turn could influence Bayer’s earnings substantially aggravating reputation for which the German company paid in June terminating the acquisition. At the end of the day, given that Roundup has become ubiquitous in modern farming it is possible that this case will have far-reaching consequences on the Bayer’s future performance.

Bayer’s shares opened with a huge bearish gap on Monday. Since then the sell-off has deepened and one may suspect that sellers might eye 78 EUR per share as the level to quit their shorts. Source: xStation5