Summary:
- European equities open lower after falls in the US and Asia
- DAX breaks below a key support
- BASF (BAS.DE) plunges due to a company’s profit warning
Sentiment across equity markets have changed notably since the latest jobs report from the United States. Markets seem to be a hostage of central banks and this is undoubtedly the case in the US. As a result, for market participants upbeat economic data are bad data as they lower the chance for monetary stimulus in the near-term. This is why we have seen price declines on Wall Street, rises in US bond yields and US dollar appreciation in recent days. Looking forward, a US-China trade war risk is still alive even as both sides are expected to hold a phone call this week. Meanwhile, the latest information from the US Commerce Department, about possible new tariffs on imported fabricated structural steel from Mexico and China, may be considered by markets as a warning signal that the upcoming round of negotiations may not go smoothly. As a consequence, European equity markets have opened broadly lower taking a leaf out of Asian markets’ book. After the first hour of trading the DE30 is the largest loser being down more than 1%. SP500 futures are also pointing to a red opening (-0.4%).
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Technically the landscape for the DE30 is beginning to look uglier as the price is trying to break below the lower boundary of the bullish channel. This area is also being supported by the 60-moving average (H4). One may imagine that if the price manages to stay below these lines till the end of today’s trading, it could not bode well for buyers. Under these circumstances the price would fall down at least toward 12200 points where the more notable support is localized. Source: xStation5
Looking into the DE30 one may notice that two stocks are standing out the most (negatively) - Covestro and BASF - being down more than 6% each. A sharp price decrease of BASF shares is a result of a profit warning released by the company itself. The world’s largest chemical maker cut its own EBIT measure forecast for 2019 (including special items) by 30% compared to the levels reached last year. The prime reason is the trade conflicts, the company wrote in its statement on Monday. The statement also added that global industrial production declined roughly 6% in the first six months of this year.
As far as underperformance of Covestro shares is concerned, the stock is a close peer of BASF, hence its weak performance on Tuesday could be treated as a by-product of the bearish revelations from BASF. On top of that, it is worth noting that BASF was downgraded by JPMorgan to neutral, thus some downgrades for its peers like Covestro, Bayer and others could be expected, at least that’s what investors seem to be pricing in.
BASF and Covestro are leading the losses in the DE30 on Tuesday. Source: Bloomberg
