DE30: Automakers pull the German market lower

• Weak data, Wall Street weigh on the DE30
• The index faces a resistance zone again 
• Rheinmetall gains on the contract news

The German market saw a blistering start to 2023, defying Wall Street weakness and reversing mid-December losses. Although we see a second day of declines, they are minor compared to previous gains. Markets await the NFP report from the US.

Macro: orders data hurt automakers

Industrial orders data for November from Germany was particularly weak at -11% y/y. While the report is volatile, the trend that we have been observing from the second half of 2021 has been very clear – the demand for the German manufacturing products has been declining and is already below the levels from the second half of the past decade. The weakness is broad based and includes domestic and foreign (including non-EMU) orders. While the domestic demand had been very weak for quite a while, a deterioration in foreign demand gathered pace in November. Weak orders data hit automakers with BMW (BMW.DE) down by 1.9%, Mercedes-Benz (MBG.DE) 1.8%, Porsche (P911.DE) 1.4% and VW (VOW1.DE) 2.1%.

Industrial data for November was very weak. Source: Macrobond, XTB Research

The DE30 remains in a tricky spot. While the most of the macro data looks ugly, valuations seem to be low – at least on the surface. The forward P/E ratio is just at 11.5, visibly lower than the 10-year average of 13.8. This is the result of record earnings that German companies were able to register after the pandemic. At one point in 2022 markets feared that the energy crisis would hit future earnings but with energy prices in Europe sharply down these worries have been put to rest. Moreover, PMI data for November and December has improved, encouraging optimism. On the other hand, the ECB tightening is yet to have an impact on the economy and with orders already struggling, can companies maintain high profitability?

Forward PE ratio for DE30 remains below multiyear average. Source: Bloomberg, XTB Research

Company News: Rheinmetall gains, Mercedes-Benz declines

Rheinmetall (RHM.DE) gains 3% after the company was awarded a contract for explosives factory in Hungary. The project will start this year and is expected to be completed in 2027. The stock also benefited from the news of the German government passing some of the heavy military equipment to Ukraine.

Mercedes-Benz wants to expand its charging points network to 10000 globally at the end of this decade. This move shows a determination of the manufacturer to go electric.                  

Rheinmetall, a defense stock, was a huge winner of the Ukrainian invasion last year. Supportive news helped the stock price to the highest level since July.                  

Technical Analysis: small pullback ahead of the NFP

After a stunning rally from Monday to Wednesday the index has seen a minor pullback under the pressure from Wall Street and the resistance zone created by Nov/Dec consolidation. A double top with a neckline at December lows (also area of August highs) is still in play so while the German market looks much stronger than US indices, an impact from the NFP report will be important. Bulls may enjoy the fact that gains took place at much higher volumes that declines – a good sign of strength.