DE30: European stocks benefit from trade developments

Summary:
- Regional elections show Five Star Support more than halving on Sardinia during the past year
- DAX (DE30 on xStation5) broke above the medium-term downward trendline
- Deutsche Bank (DBK.DE) fails to make it to the top 10 list of the biggest equity traders in 2018

Stocks in Asia, especially China, surged on the first trading session of the week as Donald Trump announced he will extend tariff deadline. Shanghai Composite added 5.60%, HSCEI (CHNComp) moved 1.78% higher while S&P/ASX 200 (AUS200) and Nikkei (JAP225) gained 0.31% and 0.50% respectively. It should not come as a surprise that in such scenario investors from the Old Continent welcomed new week in upbeat moods. Gains could be spotted all across Europe in the first minutes of trade with Italian equities advancing the most.

DE30 (DAX futures underlying) extends an upward move at the beginning of a new week. The index broke above the 11500 pts handle today for the first time since beginning of December. Moreover, the German benchmark broke above the downward sloping trendline earlier today rising hopes for further advance. The resistance zone ranging 11800-11900 pts can be seen as the first area to watch for bulls on their march higher, especially as 200-session moving average (purple line) runs there. Source: xStation5

Confederation of British Industry (CBI), the UK business organization, warned about potentially disastrous effect of no-deal Brexit. The organization said the UK professional services firms, like accountants or marketing companies, experienced the biggest drop in profits during the past quarter since financial crisis. Moreover, the sentiment measured by CBI surveys is deteriorating at the fast pace in 10 years. Profits shrinked also among companies providing services to regular consumers with outlook for this segment being the most negative since 2009. CBI cites Brexit uncertainty as the main reason behind this lacklustre condition of the UK services sector. Researchers also said that chaotic Brexit without withdrawal agreement in place has a scope to magnify all of the issues that this sector currently copes with. Sadly, there is little hope for a deal on the horizon as the UK Prime Minister Theresa May once again postponed key votes in the UK parliament.

Elsewhere, recent Sardinia regional elections may have underpinned a shift of power in the Italian populist coalition. According to the exit polls from Opinio, the ballot was won by Christian Solinas, senator backed by the centre-right coalition led by League, who is said to score 36.5-40.5%. Massimo Zedda form the centre-left alliance made it to the second place with a backing of 35-39%. Francesco Desogus from Five Star Movement performed the worst with just 13.5-17.5% of votes. This is not the official outcome as vote counting will begin today but shows quite a significant change in voters’ preferences. Namely, during the general elections in March 2018 Sardinians favoured Five Star Movement - the party had a backing of 42.5% on the island. Such a development underscores further decline of Five Star (in favour of League) on the Italian political scene and may be troubling for the party ahead of the European elections. Five Star policy claims that the party will not enter any electoral alliances but conforming to it may mean bracing for the failure in the European ballot.

Major European stock market indices after the first hour of trade:

• DAX (DE30): +0.50%

• FTSE 100 (UK100): +0.25%

• CAC40 (FRA40): +0.32%

• IBEX (SPA35): +0.52%

• FTSE MIB (ITA40): +0.90%

Covestro (1COV.DE) dips after missing earnings estimates and issuing weak guidance for 2019. Source: Bloomberg

Company News

While Christian Sewing, CEO of the Deutsche Bank (DBK.DE), is trying his best to restructure lender and bring him back to its prime, it is hard to see progress so far, at least when it comes to the trading division. Just recently Bloomberg released a report on the market share of particular banks in the global fixed-income and equity trading. The German bank did poorly in both. Its market share in fixed-income trading fell 0.6 percentage points to 8.4% in 2018. However, the lender manage to retain its 4th position in this field. Things look worse when it comes to stocks trading. Share of Deutsche Bank in global equity trading dropped 0.7 percentage points causing the lender to drop out of the top 10. Once again the US investment banks dominated holding top spots in both categories (JPMorgan in fixed-income and Morgan Stanley in equities).

According to Handelsblatt newspaper, Wirecard (WDI.DE) detected “attempts to influence media coverage with a lot of money” and reported it to BaFin, the German financial watchdog, on the 15 February. It is said to be one of the reasons behind 2-month short selling ban on Wirecard shares levied by BaFin on 18 February. Moreover, BaFin is investigating a report it obtained from one of investors who said that he was informed about Financial Times report on Wirecard prior to its publication suggesting that the paper may be involved in stock price manipulation schemes.

Covestro (1COV.DE) is the worst performing DAX member today. The company released earnings report for 2018 today and it does not bode well for the future. Namely, Covestro generated revenue of €14.616 billion, 0.9% above expectations, and EPS of €9.46, 5.4% weaker than median estimate. The company said that 2019 is going to be tough as major competitors are removing production bottlenecks and in turn its profits may halve. Covestro also said that shrinking demand from the Asian car industry had major impact on lacklustre performance in the the fourth quarter.

Fresenius Medical (FME.DE) received a downgrade at MainFirst Bank. The company’s recommendation was lowered from “outperform” to “neutral”. One-year price target was set at €70 implying a 0.3% decline against Friday’s closing price.

Fresenius Medical (FME.DE) experienced a stellar start to the year as its shares trade almost 28% YTD at press time. However, this rally was halted by the long-term price zone ranging €71.20-72.20. Now, a pullback may be looming as 50- and 200-session moving averages recently painted a bearish signal - death cross (orange circle on the chart above). Source: xStation5