DE30: Thyssenkrupp jumps as shareholders give green light to breakup

Summary:

• A tepid start to the last trading day this week across European markets

• Final PMIs confirm the grim outlook for the Eurozone economy

• Headline inflation moves down, core prices tick up in January

• Thyssenkrupp (TKA.DE) jumps more than 4% following a green light offered by major shareholders

The beginning of Friday’s trading is bringing modest increases across stock markets in Europe. Note that this seems to suggest that fuel supplied by the Federal Reserve on Wednesday is no longer supporting bulls. There is nothing surprising, indeed. While the earnings season in the United States is already well underway, only three companies listed in the DAX (DE30) have reported their earnings. Nonetheless, taking into account quite severe headwinds faced by German manufacturers and overall stuttering domestic demand there one may expect that earnings will not be astonishing to say the least.

Looking at the calendar today we basically may focus on final PMIs as well as the preliminary inflation reading from the eurozone. As far as soft indicators are concerned we got a confirmation of a further deterioration in manufacturing sectors. What’s more, the gauge for the German manufacturing was revised to 49.7 from 49.9. This is not the encouraging revision at all. From Italy, where no preliminary readings are available, we were offered a sharp decrease in manufacturing to 47.8 from 49.2, well below the consensus of 48.8. While PMI is not a perfect indicator in forecasting economic growth (no such really exists), one may suspect that the Eurozone economy may experience a continued slowdown during the first quarter of 2019 as no signs of recovery are discernible for the time being.

Core prices growth accelerated slightly in January. Headline inflation slowed down though. Source: Macrobond, XTB Research

Meanwhile the preliminary inflation data from the Eurozone showed mixed results. Although headline prices growth decelerated to 1.4% from 1.6% in annual terms (such a move had been forecast), core prices growth unexpectedly ticked up to 1.1% from 1%. On the one hand, inflation keeps moving far below the ECB’s price objective. On the other one, the higher pace of growth of underlying inflation could be encouraging. It suggests that mainly volatile items such as energy, food and tobacco could be blamed for a decrease in headline inflation. Thus, domestic price pressures ticked up in January which has buoyed the shared currency. As of 10:11 am BST the euro is the strongest G10 currency gaining virtually 0.2% against the dollar.

Technically the German DAX remains trapped in the narrow range just below the important bearish trend line. Note that the yesterday’s candlestick (marked by the blue arrow) showed hesitation among investors. If bears manage to move through 11050 points, it could enable them to continue heading toward 10400 points. Source: xStation5

After two hours of trading the FTSE 100 (UK100) is the best performing index in Europe rising roughly 0.7%. Elsewhere only modest gains might be noticed while the Spanish IBEX (SPA35) is the sole major index losing today (-0.5%). Looking into the German index we may notice that Thyssenkrupp has been by far the best performing stock so far today rising more than 4%. The gains came after CEO Guido Kerkhoff informed that major shareholders supported plans to break up the company. Furthermore, the company said that it expected to pay higher dividends in the medium-term after the planned separation was completed. Investors were not spooked even as the firm signalled that the first quarter performance could deteriorate in annual terms.