DE30: Tough press conference ahead of Mario Draghi

Summary:

• Stocks in Europe open lower but quickly move off the lows

• ECB faces market turbulence as it plans to terminate bond purchases this year

• Covestro (1COV.DE) to shed 900 jobs within a savings plan

European equity markets are following moves seen in the US and Asia and are bleeding this morning in anticipation of the ECB meeting. However, the falls have been quite limited thus far compared with what we saw elsewhere. The major topic today is obviously the meeting of the European Central Bank and possible remarks regarding the outlook for economic growth. Taking into account the fact that PMI indices continued declining in October (they’re stubbornly heading toward a recessionary area - it means below 50 points) one may expect that Mario Draghi will be grilled over this topic during his press conference (it starts at 1:30 pm BST). On top of that, we think that deliberations on a balance of risks to the economy could be the paramount point today. In recent months the ECB has tended to describe this balance as ‘roughly balanced’, and while it is unlikely that we will be offered a direct change in this field in today’s statement (PMIs are still above the 50 points threshold and one needs to remember that the remarkably poor German manufacturing PMI might have been affected by difficulties faced by car makers due to new more restricted carbon dioxide emissions), Draghi could sketch out his vision on this topic during the press conference.

The German IFO index fell in October coinciding fitting into the pattern presented by PMIs yesterday. Source: Macrobond, XTB Research

This morning we were offered another disappointment from the German economy as the IFO index fell in October to 102.8 from 103.7 falling short of the consensus of 103.2. What’s more, the index describing business expectations dropped to 99.8 from 100.9 also missing the median estimate of 100.4. In general, these numbers could be viewed as a clear confirmation that the German economy has already passed its peak and growth should moderate from now on.

After a dramatic decline on Wednesday the German DE30 is trying to recoup some of its losses today despite heavy drops elsewhere. However, from a technical standpoint one needs to be sceptical of the ongoing rebound and it could be changed only if the price moves above the gap drawn earlier this week. Source: xStation5

While the beginning of trading in Europe was not positive, the declines have been erased since then. The German DE30 is trading basically flat, the French CAC40 (FRA40) is up 0.5%, the EuroStoxx50 (EU50) is rising 0.15% while the Italian FTSE MIB (ITA40) is adding almost 0.8% - note that Deputy PM Di Maio said earlier today that he was confident that the Italy-Germany bond yields spread would fall over the next few weeks. The British FTSE100 (UK100) is by far the weakest performer this morning sliding 0.5% due to a 16% drop of the WPP following a painful turnaround plan outlined by the new CEO.

The worst performing stock in the DAX is… Deutsche Borse while the Covestro is the best one in early European trading. Source: Bloomberg

Looking into the breakdown of the German index we may notice that Covestro (1.COV) is the best performing stock this morning on the back of better earnings reported by the company. It showed that sales in the third quarter totalled 3.7 billion EUR beating the consensus of 3.57 billion EUR. EBITDA was 859 million EUR vs. 831.5 million EUR expected whereas EBIT was 707 million EUR vs. 693 million EUR expected. On top of that the firm announced a plan to dismiss 900 employees within a broad-based cost-savings plan.