DE30: Volkswagen upheld position of top car seller in 2018

Summary:

• European traders should follow developments in trade talks carefully

• DAX (DE30 on xStation5) still searches for direction

• Covestro (1COV.DE) surges after Wanhua increased price for MDI

Stocks in Europe are trading mixed on Wednesday morning. Gains can be spotted on the UK, French and Dutch stock exchanges. On the other hand, equities in Sweden, Denmark, Germany and Spain underperform. Personal goods companies are leading gains while telecoms and insurers take the biggest step back.

DE30 began a slow and steady downward move after it failed to break above the 11300 pts handle in the previous week. The index manages to stay above the downward sloping trendline so far but bears’ dominance in the past hours does not bode well for the rest of today’s session. Source: xStation5

Trade talks between China and the United States resume today in Washington. While the European Union is not directly involved, it still has much to lose. There is a high chance that Donald Trump would be keen to signing an agreement with China only if the world’s second biggest economy agrees to buy substantial amounts of the US goods. In such scenario it is likely that China will in turn reduce purchases from Europe exerting downward pressure on European earnings. On the other hand, if the two countries fail to reach an agreement and the current “truce” expires situation for the EU companies will not find themselves in the best spot either. This is due to the fact that China may offload surplus of goods on to the Old Continent and incentivize customers with discounts to secure at least a part of profits lost on trade talks failure. While neither outcome is certain European investors should stay cautious and watch the incoming newsflow carefully in order to assess in what direction US-China negotiations are progressing.

Major European stock market indices after the first two hours of trade:

• DAX (DE30): -0.30%

• FTSE 100 (UK100): +0.83%

• CAC40 (FRA40): +0.48%

• IBEX (SPA35): -0.47%

• FTSE MIB (ITA40): +0.19%

Covestro surges while Siemens underperforms. Source: Bloomberg

Company News

Covestro (1COV.DE) is the best performing DAX member today. The company surges after Wanhua, the Chinese chemical company, reported that it will rise prices of polymeric MDI in February. Covestro and Wanhua are key players in MDI market. Having said that, less attractive offer of direct competitor can be treated as a gift to Covestro.

Siemens (SIE.DE) can be found among DAX underperformers on Wednesday morning. The company submitted earnings report for the fourth quarter of 2018 today. Siemens generated 1.12 billion euros of net profit, down from 2.21 billion euro year earlier. Revenue was down 1% YoY. Lacklustre performance resulted from higher taxes and smaller demand for power turbines. Company’s CEO said that order intake bodes well for the future but significant work needs to be done to achieve position of a market leader. Meanwhile, the company is struggling to win an approval from the European authorities for its merger with the French Alstom (ALO.FR)

Infineon (IFX.DE) as well as other chip makers are enjoying upbeat sentiment at the beginning of Wednesday’s trading. Today’s good performance is an aftermath of yesterday’s release of Apple earnings. iPhone maker managed to beat expectations slightly positioning all of its suppliers for stock price gains today.

Henkel AG (HEN3.DE) is trading higher today after receiving an upgrade at Kepler Cheuvreux. The company was upgraded from “reduce” to “hold”. One-year price target was set at 88 euros, implying 3.5% increase against yesterday’s close price.

Volkswagen (VOW.DE) remained to be the world’s biggest car seller during the past year. The German car maker announced earlier this month that it has sold 10.8 million vehicles in 2018. Toyota, the Japanese automobile manufacturer, reported today that it managed to sell 10.6 million vehicles and failed to dethrone Volkswagen.